Banks told to lower credit growth to 20 pc

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Credit this year should priotise lending for manufacturing, agricultural production, rural development, small- and medium-sized enterprises, and support industries and exporters, the State Bank reiterated.

However, many smaller banks have expressed concern that the credit growth limit of 20 per cent might make it difficult for them to achieve profit targets this year, as domestic banks rely heavily on revenue from lending.

The problem is compounded since loan discounts, guarantees, and factoring, as well as the purchasing of corporate bonds, are all included in a bank’s outstanding loan totals under the Law on Credit Institutions which took effect earlier this year.

The State Bank also determined that loan agreements signed in 2010 but disbursed in 2011 would be counted in current-year credit growth totals.

Last year, credit growth reached 27.65 per cent, overshooting a target of 25 per cent and pushing outstanding loans to 140 per cent of gross domestic product (GDP). Credit growth rose in the first quarter of this year by about 5 per cent from the end of 2010.

Banks have also been ordered to reduce the proportion of consumer loans and lending to borrowers in the non-manufacturing sector, including securities and real estate investors, and to report on current outstanding loans on July 12 of this year and January 12 of next year.

Commercial banks will be forced to double their compulsory reserves if they fail to reduce the proportion of outstanding loans to these borrowers by these dates. Pursuant to State Bank Directive No 01/CT-NHNN issued on March 1, the ratio of non-manufacturing loans against total outstanding loans must not exceed 22 per cent by the end of June, and 16 per cent by the end of the year.

Total loans made for real estate investments last year totalled VND224 trillion ($10.67 billion), up by 22 per cent compared to 2009, according to Deputy Minister of Construction Nguyen Tran Nam.

Meanwhile, State Bank governor Nguyen Van Giau earlier estimated that tighter monetary policies, targeting growth in the M2 money supply of only 15-16 percent this year rather than an earlier estimate of 21-24 per cent would remove an additional VND50 trillion ($2.38 billion) from circulation and help the government in its current battle against inflation.