Banking industry sees slow credit growth

By June 16, the credit growth of the banking industry merely reached 2.13 percent compared to the beginning of this year. Thus, in the first nearly six months of this year, credit growth was only half of that in the same period last year due to the serious impacts of the Covid-19 pandemic.
Customers do transactions at Vietcombank. (Photo: SGGP)
Customers do transactions at Vietcombank. (Photo: SGGP)

Mr. Nguyen Quoc Hung, Director of the Credit Department of the State Bank of Vietnam, said that although credit growth in the first six months merely reached 2.13 percent, the lowest level in the past several years, this credit growth level is still considered appropriate in the context of initial success in the fight against Covid-19 of Vietnam.

‘The SBV's operating policies have closely followed the development of the Covid-19 pandemic, controlling the credit scale in line with the targets to ensure credit quality and create favorable conditions for enterprises and people to access bank capital to quickly recover production and business activities. However, under the impacts of the Covid-19 pandemic, the capital absorption capacity of enterprises was not high, causing the credit to increase slowly,’ Mr. Hung analyzed.

Regarding credit structure, credit in the rural agriculture sector increased by 0.35 percent; exports increased by 4.94 percent while increased by more than 10 percent in the same period last year; the high-tech sector increased by 2.92 percent; supporting industry increased by 2.27 percent. Noticeably, credit for small and medium-sized enterprises decreased by 0.7 percent; the consumption sector also decreased.

Thus, it can be seen that credit growth mainly focused on priority sectors, of which, the consumption sector, as well as small and medium-sized enterprises, were greatly affected.

In Ho Chi Minh City alone, Mr. Nguyen Hoang Minh, Deputy Director of the State Bank of Vietnam – HCMC Branch, informed that credit grew slowly in the first five months of this year and continued to focus on five priority sectors. Of which, credit inched up 0.25 percent in January, 0.13 percent in February, 1.11 percent in March, and 1.7 percent in May, and slightly slid 0.05 percent in April. By the end of May this year, credit balance started to increase the most with an increase of 1.57 percent compared to that at the end of last year, and it is estimated that by June 30, the credit will surge 2.52 percent, decreasing more than half compared to an increase of 7 percent in the same period last year.

According to Mr. Minh, the slow growth of credit activity reflects the market trend, the situation of enterprises and socio-economic growth in the context of Covid-19 outbreaks, many economic activities, and many sectors experienced production decline, temporary cessation of business, or even shutdown.

In general, credit growth in the first months of the year mainly depended on large commercial banks, but now lending is generally difficult to grow.

Mr. Nghiem Xuan Thanh, Chairman of Vietcombank's Board of Directors, said that Vietcombank set a pre-tax profit target of VND26.6 trillion and credit growth of over 14 percent. However, due to the impact of the Covid-19 pandemic, the bank had to adjust its credit target at 10 percent and will possibly achieve it.

By the end of the first quarter of this year, in the state-owned banking sector, which is also a group of large banks, only Vietcombank had positive credit growth of over 2 percent while the remaining three banks, consisting of BIDV, VietinBank, and Agribank all saw a decrease in credit growth, and in the first five months of this year, Vietcombank's credit growth reached 3 percent. According to Mr. Thanh, the current credit level is because the bank focused on retailing and services.

The leader of Vietcombank also said that bank capital is excessive, liquidity is abundant so mobilizing interest rates to decline, dragging down lending interest rates. Currently, the interest rate of some loans of enterprises at Vietcombank is merely at 4.5 percent per annum while the lowest lending interest rate is 5.5 percent per annum.

Some enterprises said that they could not access bank capital but it is because their projects and business plans were unqualified and inefficient. If enterprises meet the credit conditions, the bank will be willing to provide loans. However, Mr. Thanh also affirmed that the bank only reduced lending interest rates but not lowered loan standards in order to control the credit quality. Due to the pandemic, the credit quality will be affected in the future so the bank has increased the provision to cover bad debts.

Deputy Governor of the State Bank of Vietnam Nguyen Thi Hong emphasized that credit growth was low in the context that economic growth was affected by the Covid-19 pandemic because enterprises in many fields were seriously affected, the demand for loans was not high. At this time, the difficulty of enterprises and people is the cash flow, so the top priority of the banking industry is restructuring and debt rescheduling.

By June 8, after more than two months implementing policies to support credit for Covid-19 affected customers, the banking system has restructured the repayment term for more than 249,100 customers with a total debt balance of more than VND172.36 trillion. Credit institutions have exempted and reduced interest rates for 403,177 customers with a total debt balance of above VND1.2 quadrillion.

In the credit programs of the Government, up to now, the Vietnam Bank for Social Policies (VBSP) has rescheduled for 152,796 customers, equivalent to a total policy credit debt balance of more than VND3.85 trillion.

At the same time, the VBSP also adjusted the repayment term for 75,209 customers with a total debt of more than VND1.56 trillion and provided new loans of VND21.15 trillion for 826,473 customers.

Mr. Nguyen Quoc Hung said that at first, many enterprises said that they had not accessed the policy but he affirmed that all customers received debt restructuring when their debts were due. 

However, after launching for more than one month, currently, no enterprises are able to get loans from the VND16-trillion credit package with a zero percent per annum interest rate.

Explaining this matter, Mr. Hung said that the SBV has set aside VND16 trillion for the VBSP to disburse for enterprises, at the same time participated actively to implement the credit package, such as promulgating the Circular No.05/2020.

However, to be eligible for loan approvals, enterprises must have 20 percent of employees or from 30 employees upwards participating in compulsory social insurance who are laid off for a month or more; pay at least 50 percent of termination salary for workers in advance between April 1 and June 30.

Enterprises that are facing financial difficulties, cannot balance enough resources to pay termination salary for workers and have used up their reserve funds to lay for laid-off workers. Especially, enterprises must have no bad debts at credit institutions and branches of foreign banks as of December 31, 2019.

‘The purpose of the credit package is to help enterprises to pay salaries to retain workers, from which they can resume their production and business activities and quickly recover after the pandemic. However, the conditions to access this package are not easy, so no one has met it yet,’ Mr. Hung analyzed.

To solve this problem, the Prime Minister has also instructed the Ministry of Labor, War Invalids, and Social Affairs to collaborate with the SBV to adjust the criteria for enterprises to access the support package. Currently, the two agencies have submitted to the Government an amendment to Decision No.15/2020 in order for this credit package to be disbursed soon.

According to the SBV, credit growth for the real estate sector of the whole banking industry in 2019 was at 8.8 percent. However, the credit growth of the banking industry in the first six months of this year decreased, so real estate credit also increased slowly. The reason for the increase in credit for the real estate sector in the context of the Covid-19 pandemic is because the disbursement progress for homebuyers is still in line with the progress of the implemented projects. By the end of March this year, real estate credit increased by 1.23 percent compared to the end of last year, accounting for 19.31 percent of the total loan outstanding balance. Of which, loans for housing needs accounted for 62.43 percent of total loans for real estate.

In Ho Chi Minh City, real estate credit in the first half of this year increased by about 1 percent, accounting for 12.8 percent of the total outstanding loans of banks in the area.