Credit growth’s growing pains

Credit and economic growth are hot on the on-going National Assembly’s fourth session agenda.

Credit began to garner sharper growth from 2012’s third quarter and as of September 30, 2012 banking sector’s credit growth surpassed 2 per cent, according to State Bank Credit Division head Tran Van Tan.

Albeit retaining gloomy forecasts for global and local economy Tan still assumed the State Bank would still maintain and control banking sector’s full-year credit growth within 15-17 per cent range in 2013.

Banking expert Can Van Luc supposed it was too early to peg credit growth target for 2013 at this time, but setting credit growth at 15-17 per cent versus proposed GDP growth 5.5 per cent would be reasonable.

Some industry experts, however, kept low expectations for banking sector’s 2013 credit expansion perspective.

“Until this time, the country’s credit just expanded over 2 per cent. The bottlenecks like bad debts and businesses’ capital absorption capacity have yet to be effectively tacked. Thereby, in my view 2013 credit growth would not be better than in 2012,” said Maritime Bank’s Economic Research Centre director Trinh Quang Anh.

In respect to banks’ credit growth targets in 2013, Tan said the State Bank would continue allocating suitable credit growth targets to each bank. In the meantime, the State Bank  would combine allocating 2013 credit growth targets with tackling bad debts in each credit entity.

This issue, however, has triggered hot debate.

“In my view, the State Bank should not take the same move [allocating credit growth targets to banks] as in 2012 which have proven less effective, even bringing repercussions. In early 2012, central bank kept close eyes on banks’ credit growth target application. In mid 2012 it loosened credit growth targets, some ‘problematic’ banks were also given higher [credit growth] targets,” said deputy general director of a commercial joint stock bank, adding that this has lessened banks’ confidence into State Bank  policies.

Luc assumed central bank should not impose credit growth targets on banks in 2013 but let banks expand their credit matching their capacity and development orientations.

“Central Bank shall control credit growth level based on factors like lending amount/total deposit amount, liquidity or provision rate.  Besides, assuming the State Bank set 2013’s banking sector credit growth at 15-17 per cent, banks would not outdo this benchmark,” Luc said.

Anh said: “Credit growth limits just work when curbing inflation was put at top priority and it is less significant in current context. Otherwise, hot credit growth in 2013 would be unlikely.”