Credit yet to spike northwards

Based on State Bank figures, the credit performance in the year to February 19 was negative at minus 0.16 per cent. According to an HSBC report on macroeconomy released last week, this reflects the sizable burden of bad debt, which continues to dampen domestic demand.

“The below-50 reading of the February HSBC manufacturing Purchasing Managers’ Index (PMI) is indicative of both lackluster domestic demand and a still-weak external environment,” stated the report.

“While the quantity of purchases rose in the previous two months, this month’s contraction points to manufacturers remaining cautious to prevent over-stocking of inventories.”

Moreover, the State Bank has yet to unveil a detailed plan to tackle the pile of non-performing loans (NPLs). Whether an asset management company (AMC) can come into operation this quarter, as ordered by Prime Minister Nguyen Tan Dung, is still a question.

Besides waiting for State Bank action to tackle NPLs, commercial banks are trying to increase credit growth and enterprises’ demand by using preferential credit packages.

At the beginning of this March, Military Bank started implementing a programme worth VND1,000 billion ($48 million) for small- and medium-sized enterprises (SMEs) at the rate of 9.99 per cent, per year.

Ocean Bank has been implementing a preferential lending rate of 12 per cent, per year for household businesses. Also, the bank has just started to provide loans to purchase temporary storage of paddy and rice for  the winter- spring 2013 rice crop at the interest rate of 10 per cent per annum.

With the same programme to support agriculture, Saigon-Hanoi Bank spent VND2,000 billion ($96 million) at the rate of 10-11 per cent, per year. The programme will finish this month.

Being one of the banks providing loans for the temporary storage of paddy and rice, Orient Commercial Bank has disbursed VND1,500 billion ($72 million) out of the VND2,000 billion ($96 million) earmarked for this programme. Deputy general director of the bank Pham Linh said that to stimulate credit growth in the context of a more difficult market, the bank had to reduce its lending rate.

Some banks are reducing lending rates to levels even lower than deposit rates to attract customers.

Truong Van Phuoc, general director of Eximbank, said the bank’s lending rate was already down to 7-8 per cent for manufacturing and export enterprises. However, the bank’s credit growth so far this year is still negative.

Moreover, enterprises are still facing many difficulties, based on figures from the government’s monthly meeting for February. In the first two months of this year, 8,600 enterprises had to cease operations, while the number of newly-established enterprises was 8,000.

According to HSBC, domestic demand is still being dragged down by the country’s deleveraging process. The credit to gross domestic  product (GDP) ratio declined to 101 per cent in 2012 from 121 per cent in 2010. This process is likely to continue for the next few years, keeping growth below the trend rate at around 5 per cent.

Le Quang Trung, newly-appointed general director of Vietnam International Bank (VIB), said the economy had not recovered and the aggregate demand of the economy was still low, thus the credit growth of double digits might be difficult to reach.