Credit growth 2012’s buzz words

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In late June 2012, the local banking system’s total outstanding loan balance was reportedly almost the same compared to end of 2011, meaning banks saw no credit growth in 2012’s first half.  

The State Bank’s Credit Department said banks had pumped enormous capital amount into the economy to ensure firms’ performance in the past months.

Pushing up credit growth would reportedly top the State Bank’s management focus in the second half of 2012, unlike the focus on liquidity as seen in the first half.

In the late six months of 2012, the State Bank put a monthly average credit growth at 2 per cent, striving for a 12-13 per cent credit growth for the whole year. This means each month around VND50,000 billion ($2.38 billion) would be pumped into the economy through the open-market-operations. There arises a question whether the economy is in a position to absorb such tremendous capital volume and will inflation return?

National Financial Supervisory Commission chairman Vu Viet Ngoan said 1.5-1.7 per cent per month credit growth would be rational as more speedy growth would pave the way for inflation to roar back in 2013.

“In current context, around 10 per cent full-year credit growth would be the best-case scenario,” said Ngoan.

Many economic experts assumed late six month credit growth would be unlikely to spike since scores of banks, facing high bad debt rates, did not dare to propell lending.

Hence, to fuel lending credit growth in the last six months of 2012 would chiefly leverage on public investment projects pace.

“State credit directing public investment projects would make a major part in the money amount pumped into the economy, from there inspiring firms and contractors,” Vietnam National University, Hanoi’s Centre for Economic and Policy Research director Nguyen Duc Thanh said.

According to economic expert estimates, the capital amount needed to get National Assembly approved projects in the development pipeline would amount to VND21,000 billion ($1 billion) each month, in late 2012.  

In a related development, commercial banks are reportedly waiting for central bank to reallocate credit growth indexes in the late six months. Some well-performing banks hope they would be given more than 17 per cent per year credit growth when a top State Bank executive unveiled the possibility to loosened ceiling regulated 17 per cent per year credit growth to some best performing banks.

In reality, several banks actively acted to push up lending. For instance, credit expanded 2.4 per cent at Eximbank, around 8.5 per cent at BIDV and over 9 per cent at MB in 2012’s first five months.