Low capital raising hinders banks from credit expansion

Low capital raising hinders banks from credit expansion

To achieve the GDP growth target of 8 per cent, the banking system must inject about VNĐ2.5 quadrillion to the economy, equivalent to a credit growth of 16 per cent.

It will be hard for the banking industry to raise enough capital to meet the high credit demands. Photo vnbusiness.vn

As capital raising growth has always been lower than credit growth, banks will struggle to maintain sufficient liquidity to boost credit as expected unless they promote capital mobilisation and reduce the loan-to-deposit ratio (LDR), experts said.

To achieve the GDP growth target of 8 per cent, the banking system must inject about VNĐ2.5 quadrillion to the economy, equivalent to a credit growth of 16 per cent.

The credit-to-GDP ratio will rise even higher when the Government sets a double-digit growth target. According to calculations by the State Bank of Vietnam (SBV), every 1 per cent increase in GDP requires two per cent credit growth. Therefore, it will be hard for the banking industry to raise enough capital to meet the rising credit demands.

Meanwhile, statistics showed that in 2015, the ratio of credit to GDP in Việt Nam was 89.7 per cent and it rose to 114.3 per cent in 2020, and over 125 per cent in 2022. Currently, the ratio increases to approximately 140 per cent. If the amount of corporate bonds invested by banks is included, the ratio is even higher. This is a very high level compared to  countries with a similar economic scale or even those 15-20 years ahead of Việt Nam in economic development.

SBV Governor Nguyễn Thị Hồng also noted the World Bank has warned Việt Nam's ratio of credit to GDP is one of the highest in the world.

The General Director of SGI Investment Fund Management Joint Stock Company, Lê Chí Phúc, said that there is not much room for the banking system to increase credit because the banking system cannot mobilise an amount of money corresponding to credit growth. In 2024, the banking system continued to lend about 5 per cent higher than raised capital, causing liquidity and the capital safety ratio of banks to remain unchanged.

According to Phúc, currently, the international and macroeconomic environment is still volatile and has many potential risks. Therefore, if the banking system does not increase capital mobilisation and reduce the LDR, it will struggle to maintain sufficient liquidity to boost credit as expected, while alse withstanding unexpected shocks.

However, experts said that reducing the LDR is quite challenging for banks given that the Vietnamese economy is still heavily dependent on bank capital while the policy of the Government and the SBV this year is to maintain low interest rates to support economic growth. When the interest rate is low, bank savings are no longer attractive to people and businesses. Funds will flow into more profitable investment channels instead of bank deposits.

Currently, many banks have reduced deposit interest rates according to the direction of the Government and the SBV. According to statistics from the SBV, more than 20 banks have adjusted their deposit rates down by 0.1-0.9 percentage point per year, depending on the term and form of deposit, since the end of February. For the 12-month term, only GPBank currently lists the rate at 6 per cent per year. 

Bizhub