Credit push to shock the economy in 2013

Many businesses have already gone bust in 2012 on the back of negative credit growth and the State Bank had taken diverse measures to help firms like pulling down banks’ ceiling deposit rate and most recently loosing the valve on property credit. However, firms are still in the woods.

“Credit grew more than 1 per cent in March. If credit hiked 1.5-2 per cent per month in the next month, our set target of 15-17 per cent in 2012 will be within reach,’ said State Bank governor Nguyen Van Binh.

National Financial Supervisory Committee chairman Vu Viet Ngoan, however, assumed achieving 2012 set credit growth would be an arduous task given firms’ current poor health and slowing economic growth.

“The second quarter’s credit growth could be 5-6 per cent. It would be almost impossible for the credit to augment to 12-13 per cent in the second half of the year.  If we strive to push up credit growth using excessive measures, it may hurt economic growth in early 2013,” Ngoan warned.

Ministry of Planning and Investment’s Academy of Development and Policy president Dao Van Hung assumed economic vulnerabilities might last until the end of June 2012, so that a monthly credit growth of 2 per cent in the second quarter would be unrealistic.

Economic experts assumed inflation taming must be put at top priority and suggested the government flexibly apply diverse policies to help firms weather the storm and ensure reasonable economic growth.

Ngoan had attributed slow credit growth to banks’ liquidity problems.

“Part of the banking system currently faces a liquidity crunch, but not just 6 per cent of banks as reported by the central bank. If these banks’ illiquidity is not tackled in an efficient manner, it could hurt entire banking system and interest rates will not fall,” said Ngoan.

Ngoan suggested taking a flexible approach in regulating fiscal and monetary policies to tackle slowing credit growth.

“Many banks face poor liquidity since they cannot take back bad debts to pay for high mobilising rates and re-financing loans. They then have to raise deposits at high rates to pay off debts. Bank illiquidity could not be settled unless the central bank strives to know where bank capital flows have been going,” said senior economic expert Pham Do Chi.