Credit remains a sticky question for banks

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A State Bank source said the central bank this year might continue to assign credit growth to each bank. In 2012, banking system had four credit growth groups with growth limits of 17, 10, 8 and 0 per cent. This year there might be more groups and foreign banks in different groups.

However, credit growth limits were not effective in 2012 as the banking system’s credit growth was humble at 8.91 per cent. Many banks did not use up 50 per cent of their limit. Even some banks got State Bank’s approval to raise their cap to 25-30 per cent but last year they could not lend as much as their granted room.

Therefore, given the negative credit growth of -0.28 per cent in the first two months this year as well as the de-leveraging market demand, the credit cap is dispensable.

Economist Can Van Luc said it was not necessary to allocate credit growth to each bank as banks could balance this.

“Applying the growth cap is a way State Bank does to regulate to reach credit target of 12 per cent this year, but with the reduced demand, this allocation might not make sense,” said Luc.

Cao Sy Kiem, former State Bank Governor, said the State Bank was unsuccessful in implementing the credit growth cap last year. “At the beginning of 2012, the State Bank wanted avoid a steady credit growth like 2011 by using the cap, but when the market demand decreased significantly, State Bank then approved to open room too much.”

“Moreover, it is not essential to have the difference between local and foreign banks. Banks of good quality can have a higher cap,” said Kiem.

In reality, many banks this year set the credit growth target very low compared to 2012. According to Nguyen Duc Huong, vice chairman of LienVietPostBank, the bank planned to have credit growth of 12 per cent this year, while last year the bank was allowed to grow loans by 17 per cent.

In 2013, giant banks such as VietinBank, VietcomBank, Agirbank and BIDV all set the credit growth lower than their granted cap of 17 per cent last year. Their growth ranged from 11-15 per cent only.

Kiem agreed that there would be no strong credit growth as we had previous years.

Standard and Poor’s stated in its report named “Vietnam banking outlook 2013: balancing stability and growth could be difficult” released last month that the country's banks would continue to face challenges during the year even as the economy was likely to recover.

“We believe bank restructuring will be protracted, with industry consolidation, reduction in nonperforming loans, enhanced regulations and governance and stronger capitalisation.”