Indolent credit growth puzzle

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The central bank’s recent move to cap lending at 15 per cent, per year for four priority areas was appreciated by the public. However, it did not mean more credit would be pumped into the economy, according to industry insiders.

ACB chairman and former Minister of Planning and Investment Tran Xuan Gia said capping lending rate in four priority areas did not mean all firms could access bank loans.

Firms with poor development plans would still find it hard to access loans, despite the State Bank slashing the mobilising rate to 12 per cent per year a month ago and banks rolling out preferential credit packages with more affordable lending rates at 14-15 per cent per year.

However, few packages have been fully disbursed due to banks’ failure to find ‘good’ customers.

Before the State Bank capped the lending rate to four priority areas at 15 per cent per year, LienVietPostBank had launched a 14 per cent, per year concessionary credit package which was not fully disbursed though the bank was active in finding customers, according to its deputy chairman Nguyen Duc Huong.

Eximbank’s general director Truong Van Phuoc said the bank could just disburse VND600 billion ($28.5 million) out of its VND1,400 billion ($66.6 million) preferential package to support firms buying food with 14 per cent, per year interest rates.  

Huong attributed sinking consumption and firms’ unsold stock as to why firms did not want to borrow more.

Industry experts and firms, however, assumed low credit growth resulted from banks not wanting to lend because of bad debt fears.

In fact, many banks restricted lending and used available capital to buy treasury promissory notes with modest 5 per cent, per year yield to ensure safety.

Senior financial expert Nguyen Tri Hieu said lowering interest rates would not be an issue of prime importance.
Since banks were cautious about lending, the government needed to soon establish a body to assist traders or at least create a trust fund whose function would be guaranteeing firms to procure bank loans, said Hieu.

Deputy head of Central Institute for Economic Development Nguyen Dinh Cung said priority should be given to dealing with bad debts and weak banks in a swift manner parallel to removing ceiling mobilising and lending.

Cung argued that even with the ceiling on lending, few many firms could access loans.