Annual bank credit report of 2020 and predictions for 2021

Nguyen Tuan Anh - Director of Credit Department for Economic Sectors, State Bank of Vietnam

In 2020, the economy has suffered from intensely negative consequences due to the impact of the COVID-19 outbreak along with the aftereffects left behind from natural disasters. Under these circumstances, the SBV had promptly implemented multiple policies; proposed, organised, and evaluated various solutions to assess bank credit under the supervision of the prime minister and the government of Vietnam; strictly adhering to the economic development goals and inflation policy proposed by the National Assembly.

Firstly, increasing bank credit limit as well as security and efficiency in order to guarantee enough capital is provided for the economy, especially in the manufacturing-business industry or other fields that must be prioritised; closely monitoring bank credit in fields with underlying risks; demonstrating great flexibility in the process of evaluating and adjusting policies regarding bank credit limits based on the progression of such policies, the financial feasibility and performance of each credit institution during that period of time.

Secondly, implementing a number of solutions aimed towards aiding citizens and businesses that were severely affected by the COVID-19 pandemic through the virtues of teamwork and compassion in order to overcome this difficult situation successfully together.

Specifically, on March 13, 2020, the SBV issued Circular No.01/2020/TT-NHNN, which created legal opportunities for credit institutions to carry out measures that help reduce problems consumers may encounter during the lending process, for example the reorganisation of repayment periods, wavering and reducing interest and fees, maintaining debt classification and continuing to give out loans to advance the implementation of promising manufacturing industry projects. To create an even more favourable environment for credit institutions and banks to enforce this policy, on April 2, 2021 Circular No.03/2021/TT-NHNN was issued, making several amendments to Circular No.01/2020/TT-NHNN.

On March 31, 2020, the SBV issued Directive No.02/CT-NHNN, which tackled urgent matters of the banking industry in contribution to the COVID-19 control efforts, directing credit institutions to further accentuate and enhance the effectiveness of solutions in aiding customers affected by the pandemic; retrenching business costs and spending in order to be able to reduce interest costs down to a minimum, empathising with customers.

Aside from that, the SBV also implemented circulars which directed the recapitalisation of VND16 trillion ($695,650) with 0 per cent interest per year to assist the Vietnam Bank for Social Policies (VBSP) in loaning labour-intensive businesses that are encountering financial difficulties to pay their redundant workers’ wages due to the impact of the pandemic in accordance to previous resolutions passed by the prime minister and the government of Vietnam.

Management agencies additionally adopted other solutions intended to reduce difficulties that the aviation industry may encounter after being heavily affected by the outbreak.

Thirdly, focusing on processing and reducing issues, obstacles for citizens and businesses regarding bank credit. In response to that, the SBV urged for communication between banks and businesses in order to respond quickly to any difficulties that may be encountered during the credit process, especially with small- and medium-sized enterprises; tackling financial difficulties faced by businesses and corporations; directing credit institutions to implement solutions aimed towards aiding credit customers affected by natural disasters and/or the pandemic. Furthermore, the SBV has always shown great interest and leadership in dealing with consumer debt, contributing to the success of Vietnam’s economy’s restructuring.

Fourthly, supervise frameworks and policies regarding bank credit in order to continue making appropriate amendments, further strengthening the development of our socio-economic status and legal system. Frameworks regarding bank credit should always follow and back up other pre-existing policies that support the development of the nation – not just simply easing the expansion of bank credit limit in order to serve the economy’s growth, but to aim towards the accessibility of bank credit for monetary poor households, guaranteeing social security.

Fifthly, continuing the application of effective solutions directed at expanding bank credit, increasing the accessibility of bank credit for citizens and businesses, helping the pushback of usury.

Sixthly, applying solutions which creates favourable opportunities for the VBSP to implement bank credit programmes, increasing its productivity in effectively carrying out national bank credit policies, encouraging the mention of the role of bank credit in other social security policies; paying special attention other national development programmes; urging the spread of green credit and green banks.

Bank credit aiding the development of socio-economic development

The SBV’s current frameworks and policies regarding bank credit has contributed to the stabilisation of the macroeconomic models, ensuring the security of credit institutions’ activities.

Outstanding credits have always been maintained at a constantly increasing rate, satisfying bank credit requests for the manufacturing industry, aiding the development of the economy. Up until the end of 2020, credit growth achieved 12.17 per cent, with a 2.91 per cent increase in GDP – which is one of the highest increases in the world. As far as the end of Q1/2021, credit growth increased by 2.93 per cent, doubling in comparison to the same period in 2020.

The structure of bank credit is inclining towards shifting appropriately according to the structure of the economy. Commercial debt occupies 63.34 per cent of the total national debt of 2020, while the manufacturing and service industry holds 28.27 per cent and the agriculture and seafood industry the other 8.4 per cent. In terms of the rate of increase, the outstanding credit of 2020 rose 13.9 per cent in the commerce field (2.79 per cent increase in Q1/2021); 9.6 per cent in the manufacturing and service industry (up 3.42 per cent in Q1/2021an 8.3 per cent in the agricultural industry (up 2.42 per cent Q1/2021).

Credit continues to be directed towards manufacturing, business, and other priority fields. At the end of 2020, some priority fields have had great increase in credit, for example the export industry’s 13.66 per cent increase in credit (up 1.8 per cent in Q1/2021); 11.52 per cent increase in the agriculture industry (up 2.33 per cent in Q1/2021); 13.56 per cent increase in small- and medium-sized enterprises (up 1.49 per cent in Q1/2021).

Credit in areas with underlying risks and fields that need risk management reinforcement is still controlled at an unalarming rate: referring to build-operate-transfer and build-transfer (BOT and BT) projects, bank credit declined by 1.76 per cent at the end of 2020, in comparison to the end of 2019 (0.15 per cent decline in Q1/2021); service credit and real estate credit growth was slower than the general increase rate of bank credit (in 2020 the increase was 10.15 and 11.9 per cent, respectively; in Q1/2021 it was 1.2 and 3 per cent); debt securities declined by 1 per cent in Q1/2021.

Regarding credit policies, funding from the VBSP continues to play a significant role in the implementation of national develop programmes. Until the end of 2020, the VBSP has given out loans to 10 million customers with a total pitch of VND321 trillion ($13.96 billion). Down to Q1/2021, the VBSP’s credit policy debts came down to a total of around VND230.6 trillion ($10 billion), increasing by 1.93 per cent in comparison to the end of 2020, with an estimate of almost 6.5 million customers still in debt. Bank credit funding occupied over 60 per cent of the national development plans to eliminate poverty and hunger, helping push the completion of the programme up by 18 months against the initial plan.

Credit institutions have also carried out multiple solutions to aid citizens and businesses overcome difficulties posed by the COVID-19 pandemic. Noticeably, the reorganisation of repayment periods for 262,000 customers with VND353 trillion ($15.35 billion) debt; wavering and reducing interest rates for over 660,000 customers with VND127 quadrillion ($5.52 trillion) debt; giving out VND311 quadrillion ($13.5 trillion) loans with preferred interest rates to over 452,000 customers by the end of Q1/2021. The VBSP alone (as of March 22, 2021) has settled on appropriate repayment times for over 171,000 customers with VND4.3 trillion ($186.96 million) debt and established new loan contracts with 2.4 million customers with a total of VND88.5 billion ($3.85 million).

In general, the SBV’s bank credit policies have contributed immensely to the stabilisation and development of the economy. Scales of operations, mobilised capital, and outstanding credit have always been kept at a constant increasing rate, meeting the manufacturing industry's need for capital and contributing to GDP increase in accordance with the Congress’s targets.

The structure of bank credit is inclined towards shifting appropriately according to the structure of the economy, directed towards the manufacturing industries and other priority fields. Credit in fields with underlying risks is under control in terms of scale and quality, according to the instruction of the SBV. In addition, the banking industry’s solutions implemented in hopes of reducing difficulties encountered by consumers due to the impact of COVID-19 has been considered effective, aiding customers in restoring manufacturing-finance activities – tackling two issues at once.

Important role of bank credit in 2021

The State Bank of Vietnam (SBV) strictly monitors the progression of macroeconomic models, monetary systems, and the COVID-19 situation both nationally and internationally in order to assess bank credit with reference to the national action plan, expanding bank credit, directing bank credit towards the manufacturing industry and other priority fields; redirecting bank credit in accordance to economic shifts, and contributing to the development and stabilisation of the economy. It will also strictly monitor credit in fields with underlying risks like investments in real estate, BOT and BT projects, and securities, along with increasing risk management for lending services that serve everyday needs and consumer credit to ensure the security of banking activities.

Eagerly implementing bank credit programmes for different industries under the order of the government and the prime minister of Vietnam; pushing the enactment of the financial industry’s role in national development goals, executing programmes regarding bank credit in a satisfactory manner.

Continuing to carry out solutions aimed towards removing problems for consumers affected by the pandemic and frameworks aiding customers and businesses encountering difficulties with bank credit due to the impact of natural disasters in order to quickly recover the manufacturing industry.

Directing credit institutions to continue creating opportunities to aid citizens and businesses in obtaining bank credit, fulfilling citizen’s legal demands and helping reduce usury.

Encouraging cooperation between local authorities to push the implementation of programmes connecting banks and enterprises with diverse methods, corresponding to each area’s specific needs.

Researching the development and execution of green banks and green credit to amend the national green growth policy of 2021-2025 and spreading awareness on the activities regarding risk management carried out by credit institutions and foreign bank branches in Vietnam; making amendments to frameworks regarding bank credit, working fields, loaning activities of credit institutions and guarantee activities.