Regaining trust essential to bolster growth of credit

March 26, 2024 | 10:00
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Some banks are at times reluctant to lend, regardless of their financial standing. Tran Ngoc Bau, CEO of WiGroup, a major provider of economic data and fintech solutions, talked to VIR’s Nhue Man about credit bottlenecks in the current context and how to boost credit growth in a healthy manner.

Some bank executives have admitted that although the banking system has ample capital sources, they can be hesitant to lend out, leading to credit contraction in the first two months of this year. What’s your take on this?

Regaining trust essential to bolster growth of credit
Tran Ngoc Bau, CEO of WiGroup

We need to separate two issues: why banks didn’t dare to lend out amid robust liquidity and a low-interest environment, and credit eyed contraction in the first months of this year.

The first issue has been the case for several years, due to uncertainties post-pandemic and in the face of a weakening global economy.

This situation came amid feeble demands, preventing good firms from borrowing more for business expansion. Meanwhile, small- and medium-sized enterprises and risk-prone firms are thirsty for capital, yet banks are hesitant to lend. This is understandable on the part of lenders as a large proportion of these borrowing requirements emanated from the demands to reschedule existing loans or for resistance purposes, containing many risks.

In addition, the real estate sector, which accounts for a huge part of the banking sector’s credit sources, is swimming in difficulties. This means slow credit has been attributed to the gap in expectations between the supply and the demand side, and the fact that trust has yet to be resumed in the market. This situation is commonplace in any economy which is in a stage of rebound post-slump, not only for Vietnam.

The second issue of credit contraction in the first months of the year compared to the month before is not a rare thing in Vietnam. That is partly because the first quarter hosted the Lunar New Year holiday which landed in mid-quarter, with stronger seasonal impacts compared to other quarters.

I believe credit will regain growth momentum from now onwards.

Facing difficulties, most firms pay their heeds to banks with concrete demands on softening lending rates or rescheduling loans. How do you perceive this?

A bank is also an enterprise, and for a private bank, protecting shareholder interests is set as a priority. That is reasonable. However, the banking sector’s profit growth is almost immune to common difficulties of the economy, and that needs careful consideration.

Banks take on the role of financial intermediaries, and that financial intermediaries hold up too many profits in the whole chain proves unfair to both depositors and borrowers.

To change this situation, we must abate the importance of banking credit sources in the economy by spurring the development of other capital-raising channels, not allowing bank credit to serve as the only capital channel of the whole economy as the case at present.

First and foremost, it is important to ensure the healthy development of the stock market and corporate bond market, helping firms to approach medium and long-term capital channels for investment development.

Another aspect is reforming the regulatory framework and product management mechanism to help Vietnam’s stock market to better approach international capital sources, particularly stable and long-term ones.

How can lending be pushed up in the current context?

Credit relations are always rooted in trust and at times of economic uncertainties, this factor is greatly affected. Banks’ decisions on offering low or high lending rates depend on the risk level of businesses. Boosting bank credit relates to the capacity of stakeholder parties.

For their part, banks also need to work out effective management mechanisms to tackle this bottleneck, yet not simply pose requirements to firms.

To encourage banks to lend out, several issues need to be resolved. The output market for production and business activities eyes growth rebound, then a rebound in the realty market becomes more apparent, and the risk associated with bad debts is curtailed. We are seeing improvements in all these aspects, particularly with interest rate and bad debt issues.

In addition, other puzzles about the health of the Chinese, United States, and EU economies and geopolitical uncertainties are also factors deserving attention, as unfavourable movements in the world also cast impacts on Vietnam’s economy.

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By Nhue Man

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