Credit growth

Credit growth

According to the State Bank of Viet Nam's Monetary Policy Department, as of May 22 this year, the banking sector had achieved credit growth of 2.29 per cent compared to the figure recorded in late 2012.

With such growth, the banking sector's credit growth would have to rise to at least 1.25 per cent per month in the eight remaining months of the year to reach its target of 12 per cent for the entire year.

However, to do so, the banking sector would need growth of over 1 per cent monthly, as the property market is still sluggish and most enterprises continue to be cautious about capital usage. Besides, aggregate demand in the economy remains weak.

To spur credit growth, new reductions in the lending interest rate should be taken so that it is hovers around 10 per cent.

This would encourage enterprises to borrow capital to invest in production and business activities.

But many Vietnamese enterprises, due to the recession, cannot absorb money even at a lending interest rate of zero.

For many of them, interest rates are not their biggest problem. Instead, the biggest obstacles are the rising volumes of inventory and the slump in the consumption market.

But the fact remains that the majority of domestic enterprises need capital support from the banking system. Bank loans still make up a major part, up to 70 per cent, of enterprises' capital structure.

Thus, if the lending interest rates were cut, it would offer an opportunity for many enterprises.

Since 2012, the central bank has taken several measures to improve the economy and encourage domestic production and business activities. It is considering capping the lending interest rate to stimulate credit demand.

However, to ensure the central bank's efforts are worthwhile and enterprises can access low-cost loans, it is necessary to set up closer cooperation between all banks and enterprises as well as the government's support.

It is also important to recognise that banks are also businesses. Although they want to give capital support to enterprises, they also have to keep their capital intact.

To ensure that their investments are secure, banks have been applying strict conditions to borrowers. As a result, only 30 per cent of all enterprises that need to borrow money can qualify for a loan.

To help both sides, the Government should offer credit guarantees for enterprises, particularly those that have highly feasible projects or development and investment strategies in thriving industries.

On the enterprise side, they need to show that their projects can be successful and that their production and business activities can generate a stable source of revenue.

Market supply and demand has to become more balanced, which would help companies settle their inventories. To do this, consumer confidence must be improved as well.

vietnamnews