Soaring credit triggers warning
Soaring credit triggers warning
Bank credits rose sharply in the second month of this year which would pose a threat for a hot credit growth in the months ahead.
According to recent figures published by the Ministry of Planning and Investment (MPI), bank credit expanded by 0.96 per cent as of February 24, 2015, while credit growth was reported to surpass 1 per cent by the end of the month.
This came unusual as February credit has shown tendencies of contraction in the previous years. For example, bank credit dropped 1.67 per cent in February last year.
Earlier, credit reportedly contracted 0.5 per cent in January this year, matching the patterns set by recent years.
Vo Tri Thanh, deputy director of the Central Institute for Economic Management under the MPI has attributed February 2015’s positive credit growth to firms’ high expectations on economic rebound.
Besides, this year’s Lunar New Year (Tet) took place in February leading to soaring demands for capital.
Another important factor was the low and stable rates of bank interest.
The State Bank Governor has instructed banks to ease lending rates by 1-1.5 per cent for medium and long-term loans whereas a new recent regulation has enabled banks to use as much as 60 per cent of their short-term capital for medium and long-term lending, as opposed to the previous rate of 30 per cent.
Rising credit is allegedly a good news within the current context of continuing economic vulnerabilities, although experts issued a warning that soaring credit could risk bank operations and drive up banks’ bad debts.
Last year, the market saw scores of banks achieve escalating credit growths of 30-50 per cent at the same time as claiming the volume of bad debt rates sank to just 1-2 per cent of their total outstanding loans.
Experts, however, argued these banks’ bad debts could be doubled or tripled if their credit growth stood only at the banking sector’s average level of 14 per cent, instead of the achieved 30-50 per cent.
Furthermore, economists also assumed credit growth in the range of 30-50 per cent could lead to a hot-paced growth threat as it has happened in the previous years with the resultant repercussions’ impact still perceptible.
Banks, therefore, should not over-focus on boosting credit growth, but promoting service segments instead to deepen bank operations and to reduce risks.
State Bank Governor Nguyen Van Binh has also stressed that the credit growth being set at 13-15 per cent for this year was not a target to achieve but the cap for this year’s credit increase.
“Credit must be kept at a certain level to ensure security. Banks could not develop sustainably if they were to chase after credit growth while neglecting the development of other banking operations,” Binh said.
