$11.52 bln in liquidity support to be provided by year-end: Govn’t

$11.52 bln in liquidity support to be provided by year-end: Govn’t

The government has announced that it will pump an average of VND40 trillion ($1.92 billion) worth of liquidity support into the local economy each month from now to the end of this year.

The stimulus is aimed at lending a helping hand to ailing credit growth so that the yearly target of 12 percent credit growth will be realized by year-end, said Deputy Prime Minister Nguyen Xuan Phuc in a recent session of the National Assembly in Hanoi.

As of May 22, credit growth had increased 2.29 percent from the end of 2012, of which the growth of the Vietnam dong reached 4.57 percent credit, while that of foreign currency fell 8.07 percent, according to the latest data from Monetary Policy Department under the State Bank of Vietnam (SBV).

Credit growth was around 0 percent in the first five months of 2012, with almost no growth compared to the same period in 2011.

Vietnam topped regional countries in terms of credit growth from 2006-2010, with an annual rate of over 30 percent. The rate dropped to over 12 percent in 2011 and then 8.9 percent last year, as mounting bad debts began to choke banks from lending more.

The money supply growth rate also went hand in hand with credit growth during the period.

Deputy PM Phuc also stressed that the government will continue to implement drastic measures, including urgently putting the asset management company, Vietnam Asset Management Co (VAMC), into operation to tackle bad debts in the banking system.

Some VND105 trillion ($5 billion) worth of bad debts are expected to be recovered by the end of this year, and the bad debt rate will fall below the safety bar by 2015, said Deputy PM Phuc.

According to a report sent to the NA by SBV governor Nguyen Van Binh, by the end of April, the total amount of bad debt in the system was VND137.1 trillion, equivalent to 4.67 percent of total outstanding loans, up from 4.08 percent at the end of 2012 and 3.07 percent in late 2011.

However, Binh said if the SBV did not force local banks to set aside loan-loss provisioning, the rate may have shot up to VND213.8 trillion, or 6.8 percent of total loans.

In addition, if the SBV failed to issue Decision No. 780/QD-NHNN on debt restructuring, the rate may have skyrocketed to VND362.8 trillion, or 11.5 percent of total loans.

Will there be a glut?

As of May 2013, the amount of deposits in the banking system increased by nearly VND200 trillion, while loans increased by only approximately VND70 trillion, Saigon Tiep Thi newspaper quoted a banking expert, who drew data from the latest SBV report, as saying.

The difference between deposit and credit growth was up to VND130 trillion. Some of the spare money has been used to buy government bonds, while the remaining stayed idle in the banking system, according to the SBV report.

"The stagnation of the capital outflows in the banking system shows that SBV’s monetary policies have not been as effective as expected. It appears that the local economy now looks like a debilitated body that could not absorb the nutrition from an abundant source of food,” he told Saigon Tiep Thi.

Therefore, though the SBV has continued to pump money into the system recently, it must withdraw as the money remains untouched.

Weakening purchasing power, represented in a slowing inflation growth rate, means the aggregate demand for goods is still weak. This has left local firms unable to clear their unsold stocks and unwilling to borrow more from banks to expand their production, thus restricting credit growth from rising sustainably.

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