Sledgehammer falls on credit growth

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According to the State Bank’s monthly market report released last week, during April 1-21, total outstanding loans expanded only 0.11 per cent month-on-month, the lowest monthly jump since 2008. Vietnam dong denominated credit grew by 0.14 per cent and US dollar denominated loan increased by 0.02 per cent.

Against the end of 2010, by April 21, aggregate credit growth reached 5.01 per cent.

“Obviously, credit expansion is slowing sharply due to high interest rates,” said Nguyen Thi Kim Thanh, head of the central bank’s Banking Strategy Institute.

Tran Phuong Binh, general director of Dong A Bank said the high interest rate discouraged borrowers from taking bank loans and banks had become more cautious.

At the moment, though the State Bank allowed local lenders to mobilise money within a 14 per cent per year band, some banks are offering deposit rates of up to 16-17 per cent, per year. On the lending side, the rate stays higher than 20 per cent, per year mark.

Thanh said that as inflation continued weighing on policy-makers’ minds, monetary policy would remain tight.

“Over the first four months, the credit expansion was just around 5 per cent, the credit growth target of under 20 per cent set by the government is certainly on its way,” said Thanh.

Two weeks ago, the State Bank continued tightening monetary policy by hiking open market operations (OMO) rate by 1 per cent to 14 per cent per year, the sixth rise since last December from 7 per cent, per year.

On April 29, the authority also decided to raise refinancing rate and overnight lending rate by 1 per cent to 14 per cent, repeating a similar move in March, 2011.

On March 31, the State Bank decided to raise refinancing rate and overnight lending rate by 1 per cent to 13 per cent, nearly a month after hiking both the refinancing rate and discount rate to 12 per cent from 11 and 7 per cent respectively - aggressive moves in a determined attempt to improve economic stability.

April’s nationwide consumer price index (CPI) came in at 3.32 per cent month-on-month, driving the year-on-year figure to 17.5 per cent, the highest hike since December, 2008.

The combined effect of monetary and fiscal expansion throughout 2010 with the hikes in petrol and electricity prices was the main price index driver. Since February, the government has hiked petrol prices twice with a total adjustment of nearly 30 per cent, electricity prices were adjusted by 15 per cent upward and the price of coal was up by 20-40 per cent.