SBV forecast to raise credit growth by 1-2%

The central bank is likely to raise credit growth target by 1-2 per cent from the original 17-18 per cent for 2017 - Photo

The State Bank of Viet Nam (SBV) may do this to support growth, as the GDP was relatively low in the first quarter of 2017. Việt Nam posted a year-on-year GDP growth of 5.1 per cent in the first quarter of 2017 due to slowdown of agriculture, forestry and aquaculture, slower than the previous two years at 5.48 and 6.12 per cent, respectively.

The forecast has been made in the scenario that inflation in the remaining months of the year is expected to stay under control, the BVSC said, in a report titled “Inflation and its impact on monetary policy”, which was released recently.

The General Statistics Office (GSO) has reported that Viet Nam’s month-on-month consumer price index dropped 0.53 per cent to a 10-year low in May because of the plummeting prices of many items, especially foodstuff, which brought down the year-on-year inflation index at the end of May to 3.19 per cent, down sharply from 4.3 per cent in April.

One of the biggest concerns for inflation this year is the impact of the revised rates of medical services. However, as per observations, as of end May, the roadmap for increasing the prices of drugs and medical services under step 2 of Joint Circular No.37, issued by the health and finance ministries, was completed.

As per BVSC’s statistics, this is likely to be the final adjustment in the rate of medical services, which was being revised as per the two-step roadmap since the beginning of 2016 till now. In the remaining seven months of 2017, healthcare products will not have a sudden impact on inflation, the report said.

The BVSC has adjusted the year-on-year inflation forecast for Q2 to 3 per cent, compared to 3.2 per cent at the end of Q3 and 3.5 percent at the end of Q4.

Meanwhile, credit growth has been accelerating rapidly since early 2017. The system’s loan growth as of end of April reached 5.76 per cent, up 1.73 percent from the end of Q1 and significantly higher than the same period in the past three years.

At the end of Q1, many banks had outstanding loans that exceeded the overall growth of the system. For example, Vietinbank saw credit increase 5.6 per cent from the end of last year, while Vietcombank saw 8 per cent and VIB 5.7 percent.

The acceleration of credit since early 2017 may lead to two scenarios. In the first scenario, banks will have to consider slowing their growth momentum, and tightening their lending activities in the remaining months to stay within the credit growth target set by SBV, especially leading banks that have a large lending scale.

In the second scenario, banks may ask the central bank to raise the credit growth target, and banks that have dealt strongly with bad debts and have healthy lending are likely to be allowed to do so.

However, as per analysis, increasing credit growth should be done with caution. The whole system is just recovering, and many banks are still burdened with bad debts. So any impetus in growth resulting in a decline in asset quality must be closely monitored by the central bank, BVSC recommended.