Bank lending expected to get out of coronavirus doldrums soon

Credit growth is expected to improve significantly thanks to many proactive measures taken by the Government and central bank recently to revive the economy. (Photo cafef.vn)

In the first three months, the rates had been 0.1 percent, 0.07 percent and 1.1 percent as the COVID-19 pandemic severely impacted various industries and their demand for funds.

Consumer demand and foreign trade were also badly hit.

The State Bank of Vietnam (SBV) said in the first quarter many businesses increased repayment of existing debts while not borrowing afresh.

Experts say the situation has been improving in the second quarter with demand from credit from businesses and individuals showing signs of increasing.

In Hanoi, total loans outstanding at credit institutions in May were estimated at 2.163 trillion VND (94 million USD), representing a 2.4 percent increase for the year.

Credit growth is expected to improve significantly thanks to many proactive measures taken by the Government and central bank recently to revive the economy.

For instance, the SBV has cut benchmark interest rates, the latest occasion being on May 12 when the refinancing rate was reduced to 4.5 percent from 5 percent, the discount rate to 3 percent from 3.5 percent and the overnight inter-bank lending rate to 5.5 percent, from 6 percent.

Fitch Solutions experts forecast a further 50 basis point cut that would take the refinancing rate down to 4 percent and discount rate to 2.5 percent by the end of this year.

The cuts are likely to have a strong impact on the economy by encouraging banks to reduce their lending interest rates and boost demand for credit, experts say.

Besides, low deposit interest rates, especially for the short term, has helped and will help banks reduce their cost of funds further, giving a further fillip to lending interest rate cuts.

The Government recently gave a five-month extension for payment of taxes and land use fees for businesses hit by the pandemic, which come to an estimated 180 trillion VND, benefiting 98 percent of firms in the country.

All these measures are expected to help increase the credit demand.

The Government’s policy of identifying public investment as the engine for economic growth, which has stalled due to the pandemic, has placed the focus on speeding up disbursement of public investment.

While other investment sources have slowed down, increasing public investment, planned at nearly 700 trillion VND this year, should be useful in accelerating post-pandemic economic growth, thus creating more employment and increasing credit demand.

Though credit growth is expected to be only 9-10 percent this year compared to 13 percent last year, paradoxically some banks have nearly reached their full-year credit quota and are asking the central bank for more credit quotas as they have nearly reached the threshold.

VPB for instance has crossed 12 percent while it has a full-year quota of 13 percent.

Its CEO said the bank had turned its lending focus to customers less affected by the pandemic since the beginning of this year.

TPBank announced at its annual general meeting recently that its credit growth by the end of April was 11 percent, meaning it had only 0.5 percent left.

It is expected to ask the central bank to increase its limit to 15 percent this year.

HDBank’s loans outstanding at the end of the first quarter were worth 162.06 trillion VND (6.9 billion USD), up 5.92 percent for the year, much higher than the industry average. It reported steady growth across all segments like individual customers, small and medium-sized enterprises and consumer loans.

It attributed the high growth rate to signing contracts with enterprises late last year.

Experts have warned that if these banks’ credit quotas for the year are not increased, they, the business sector and indeed the entire economy would face trouble.

Though exports are hit by the pandemic, the demand for investment and production of goods in the country remains high, meaning the demand for credit is still significant.

This year’s credit growth is likely to reach 9-10 percent, lower than the central bank’s 11-14 percent target, but any change is possible, they added.

Balance of trade, payments surpluses keep the VND steady

The COVID-19 pandemic has hit global trade hard, but some of Vietnam’s exports have escaped its worst effects, which has helped keep the VND-USD exchange rate steady.

In the first five months of the year Vietnam’s biggest export earners were processed and manufactured goods, of which 17 generated at least 1 billion USD each.

Electronics, computers and accessories accounted for 15.3 billion USD, a year-on-year increase of 22.1 percent. Exports of machinery, equipment, components, and tools reached 8.5 billion USD, a 25 percent rise.

While several agricultural products saw a drop, coffee and cashew achieved slight increases.

According to the General Statistics Office, Vietnam’s total trade in the first five months was worth 196.8 billion USD, a decrease of 2.8 percent against the same period last year. It enjoyed a surplus of 1.9 billion USD.

This means there has been a substantial inflow of foreign currency, stabilising the exchange rate.

Since the end of last year the dollar rate at banks has appreciated by only 92 VND, or 0.24 percent.

Speaking about the influence of the yuan on the VND, experts said the depreciation of the Chinese currency has only had a marginal effect so far.

The confrontation between the US and China has shown no signs of ending, which could further depreciate the yuan, but the Chinese Government does not seem to have plans to sharply devalue the currency.

Meanwhile, Vietnam still pursues a strategy of keeping the exchange rate steady.

The country is also running a balance of payments surplus, which gives it a further cushion.

The VND is expected to escape volatility caused by external factors through this year.