Experts stress reasonable, not reckless, credit growth

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According to a government press release, as of October 23, Vietnam’s credit growth stood at 6.48 per cent, far below the 12 per cent annual target set by the State Bank (SBV) under Direction 08 on July 18.

The entire banking sector would have to surge forward to gain the 5.5 per cent needed to meet the goal.

“Credit growth should not be a target, a number to be achieved at year end,” said Alan Pham, chief economist at VinaCapital.

Credit should grow according to the real capital needs of an economy. It is contingent on economic forces such as business conditions, consumer demand, and absorption capacity, he added.

Experts say low credit growth is resulting from lack of demand. Enterprises aren’t borrowing as they are producing less goods because consumers aren’t buying.

Economist Tran Du Lich said many enterprises were floundering because of weak purchasing power, surplus inventories, and mounting bad debts.

Also, the poor liquidity of the falling real estate market has made it difficult for banks to recoup bad debts.

Commercial banks need healthier enterprises to boost capital demand and help them meet their credit sales targets.

But Pham said that any attempt to bolster bank lending in the last two months to hit the annual target would do more damage than good due to policy lag time – it takes about 6 months to see the effects.

He said that economic growth and GDP performance was already pretty much determined for the year.

“Any attempt to increase credit now is already too late to affect growth this year and it may have inflationary consequences further down the road in 2-14,” Pham explained.

Economist Nguyen Tri Hieu also agreed it was not necessary to reach the 12 per cent credit growth target.

According to Pham, credit growth of 9-10 per cent this year is achievable and is on par with last year.Vietnam’s economy has entered a period of sub-par growth (5-5.5 per cent) due to inefficiencies such as slow banking, SOE and public investment reforms. The best solution to achieve growth is pushing these reforms forward, he said.

HSBC economist Trinh Nguyen has forecast appropriate credit growth of 8 per cent for this year.