HCMC bank credit growth scrutinised

Deputy director of the State Bank of Vietnam’s Ho Chi Minh City branch Nguyen Hoang Minh

How have Ho Chi Minh City banks fared so far this year in terms of credit growth?

The city’s banking system saw credit grow by 4.68 per cent in the first eight months of this year. By the end of July, total bad debts were at 4.65 per cent, slightly down against the previous month. The banking sector’s bad debt is primarily from the manufacturing sector, at 76 per cent of the total.

How do you foresee credit performance for the remainder of this year?

In July, credit growth in Ho Chi Minh City banks have achieved nine times that of average national credit growth, which stands at 0.16 per cent.

And while this growth froze up a bit in August, it is expected to again leap forward in the later months of the year as service businesses’ capital demands grow.

In reality, more and more firms are able to borrow from banks, thanks to the ongoing credit networking programme that has been set up between banks and firms.

How much capital has been disbursed thus far under this programme?

By the end of August, as much as VND21 trillion ($1 billion) was disbursed under the networking programme and the city’s People’s Committee plans for disbursement to hit VND30 trillion ($1.4 billion) to support firms.

Another programme, which involves eight local commercial banks offering preferential interest rates, will see VND8.3 trillion ($395 million) disbursed through year-end.

These programmes are aimed at ensuring Ho Chi Minh City hits the set credit growth target of 12-14 per cent this year.

The State Bank has required banks to work on internal and corporate credit ratings to provide more non-secured loans to firms. How have the city’s banks fared in this regard?

Banks have followed the SBV’s instructions, but there are not yet clear results that can be reported. Moreover, due to the current crisis with bad debts, banks are being very cautious about lending without collateral.

In fact, banks previously also supplied unsecured loans to ‘good’ customers that had feasible projects. Such lending accounts for only 17 to 18 per cent of total loans, and therefore it is not likely we will see a major rise in unsecured lending.

How have city-based banks tackled bad debts up to now?

In the first seven months of this year, the city’s banks resolved around VND8 trillion ($381 million) in bad debts, mainly through provisionary funds. Of this, more than VND1 trillion ($47.6 million) was sold to state-owned Vietnam Asset Management Company.

Compared to early 2014, banks’ bad debts have actually increased, due to the State Bank’s circulars 02 and 04 on debt classification. That is why some city-based banks have actually seen their credit shrink this year.