Credit expansion benefits investment channels with high liquidity

Credit expansion benefits investment channels with high liquidity

To gain the Government’s target of 8 per cent GDP growth this year, the SBV sets a higher credit growth this year at 16 per cent, against 15 per cent last year. It means VNĐ2.5 quadrillion (US$78 billion) will be injected into the economy.

The State Bank of Vietnam aims to inject VNĐ2.5 quadrillion into the economy this year. Photo cafef.vn

Investment channels with high liquidity will get better benefits when the State Bank of Vietnam (SBV) plans to pump a huge amount of money into the economy this year, Trần Ngọc Báu, general director of financial data provider WiGroup, is forecasting.

To gain the Government’s target of 8 per cent GDP growth this year, the SBV sets a higher credit growth this year at 16 per cent, against 15 per cent last year. It means VNĐ2.5 quadrillion (US$78 billion) will be injected into the economy.

According to Báu, in the short term, so within about three years, all investment channels will benefit from the money injection. However, investment channels with higher liquidity, such as government bonds, foreign currencies, stocks, corporate bonds and real estate, will benefit faster and on a larger scale than others.

As for gold, it is connected to the international market and is controlled by the world price, so the investment channel will not be affected by Việt Nam’s money supply rise, Báu said.

However, Báu believes that the risks that come with credit expansion are inevitable.

He explained as a huge amount of money was injected in the economy, it would cause high inflation, asset bubbles and high bad debt if the money did not flow into the real production sector.

“The pressure on liquidity and capital safety will increase when credit grows too quickly, causing the capital adequacy ratio (CAR) to decline and the risk of bad debt to escalate. At the same time, strong capital injection into the economy can increase inflation, put pressure on exchange rates and interest rates that affect macro-economic stability,” he explained.

In addition, Báu also noted the imbalance in the financial structure when the economy is overly dependent on bank credit, instead of developing long-term capital mobilisation channels such as the securities and corporate bond markets.

“Currently, the bond market is still recovering slowly, while the stock market has almost frozen with very few large deals in the past five years. The investment flow has decreased while goods on the stock market are lacking in both quantity and quality. The urgent solution is to reopen the two important capital channels,” Báu proposed.

In addition, experts are concerned that the rapid growth rate of bank loans also poses a potential risk of increasing pressure on the asset quality of banks that has not shown clear signs of improvement in recent quarters.

According to SBV’s data, bad debts of commercial banks as of December 31, 2024 were more than VNĐ733.9 trillion (US$29 million), an increase of 3.4 per cent compared to the end of 2023.

To prevent the risks, experts say that capital needs to be targeted to real production and business sectors.

The Government should promote the attraction of foreign capital, including foreign direct investment (FDI), foreign indirect investment (FII), international credit and deposits. In the context of low domestic interest rates, FDI capital flows can become the main support. If Việt Nam takes advantage of opportunities and removes current bottlenecks, the ability to attract this capital flow will be very clear.

It is also necessary to complete the legal corridor and create conditions for financial companies and fintech companies to expand their operations as the companies can play an important role in providing capital in market segments that commercial banks have not effectively exploited, contributing to building a more flexible and sustainable financial system. 

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