Slowed credit growth stymies banking sector

After a positive first six months credit growth has remained largely flat Photo: Le Toan

According to State Bank figures, credit growth as of October this year grew by 6.8 per cent. Counting the risk provision and NPLs handled by the Vietnam Asset Management Company (VAMC), credit growth stood at 7.89 per cent.

However, this credit growth was not much of an improvement over last August’s figures of 6.45 per cent.

In 2013, credit growth initially made good headway by jumping from 0.1 per cent at the end of March, to 3.31 per cent at the end of June this year. In the period from June to August, credit growth was similarly impressive, nearly doubling, but then flatlined, remaining almost completely unchanged from August.

The poor results since August are in contrast with commercial banks’ efforts to reduce lending rates to stimulate consumer demand. The lending rate drops among almost all commercial banks saw Tien Phong Bank reduce their rates all the way to 0 per cent for consumer loans.

According to Pham Huy Hung, chairman of VietinBank, the current lending rate is already a sharp reduction, with the average long term lending rate of some banks at only 10-12 per cent per year.

“However, credit growth is still lower than the economy’s expectations. Capital absorption is low. The cash flow circle is not running smoothly as bad debts persist, despite banks trying to settle them by selling collateral,” said Hung.

According to a Military Bank Securities’ report titled Vietnam Monetary Market, to reach 12 per cent by the end of this year, credit must grow by 5.55 per cent in the year’s last two months, a target the report feels is unlikely to be met.

Similarly, HSBC in its Macro Vietnam report released early last week also expressed concern about slow credit growth in the country. HSBC’s report put year-to-date credit growth at a meagre 6.6 per cent, and stated that “credit growth will likely stay subdued as debt remains unresolved”.

One factor that could help to speed up credit growth is the operation of VAMC. Since beginning to buy NPLs last October, VAMC already bought VND15,000 billion ($714.3 million) of NPLs. According to Nguyen Quoc Hung, vice chairman of VAMC, an additional VND38,000 billion ($1.8 billion) was waiting to be sold to VAMC.

Banks which have already sold NPLs to VAMC, include Agribank, Saigon-Hanoi Bank, Southern Bank, Saigon Commercial Bank, PGBank, GPBank, Maritime, and Techcombank.

Banks of better health such as Vietcombank, Sacombank and ACB also plan to sell NPLs in the near future to improve their balance sheets.