Discretion needed when boosting credit
Discretion needed when boosting credit
There are signs that the economy is rebounding, but bank loans are still hard to come by.
The decision to pump out money needs to be taken with discretion to avoid creating adverse consequences down the road, says Economist Tran Du Lich, member of the National Financial and Monetary Advisory Council in an interview with VIR.
We’re two-thirds of the way through the year. What are your expectations regarding Vietnam’s economic situation in remaing months of 2013?
Through looking at the signals seen in the first half of the year as well as the whole development process during the past five years when the local economy experienced uncertainties, I would say that Vietnam’s economy has bottomed out. This provides a platform for me to propose a medium-term programme to support an economic rebound based on a target inflation rate of 7 per cent per year over a three-year period for the implemention of a raft of support measures.
I saw signs which demonstrate the economy is gradually escaping stagnation and these signs will be more apparent in the fourth quarter.
Until early August, macro-economic indicators like economic growth, inflation, exchange rate, and import-exports proved healthier compared to a year ago. The financial and property markets are improving as well.
Vietnam’s economy, however, is still progressing below its actual potential and is still facing short-term hardships. The government’s support policies, albeit prioritising economic stability, have focused more on the application of wide-ranging measures to spur aggregate demand and motivate growth.
What major challenges will face the economy in remaining months of 2013?
Although difficulties and challenges still dog the remaining months of the year, barriers to development have been lessened compared to early year. For instance, the banking sector’s liquidity has markedly improved. Major challenges in the short term and for many ensuing years remain tackling bad debts, reinvigorating the property market, resuming faith and healthy growth in the financial market and business restructuring of both state-owned and private firms.
There exists a paradox that while banks have ample capital sources, many firms remain thirsty for capital. So what measures will be needed to address this situation?
Finding the right answer for this puzzle is not simple and must not be made in haste. The largest hindrance to credit accessibility at present — bad debts — could not be settled overnight though the situation was better compared to previous years. Banks did not want to lend when risks were too high. Good firms prove cautious about bank offers since they have to consider what channels would make best use of the capital.
In fact, increasing savings and offering loans are the main activities for banks. Banks don’t offer to lend finance if the risks are too high. The State Bank of Vietnam has enacted and is coming up with diverse policies to tackle the paradox but this bottleneck won’t be rapidly solved. It is impossible for us to boost credit growth while leaving bigger bad debt problems for a later period.
vir
