From now until the end of the year, the State Bank of Vietnam will review and consider revising credit growth targets for credit institutions and priority is expected to be given to those that reduce loan interest rates.
SBV to consider revising credit growth targets for banks
In the face of the complications caused by COVID-19, the State Bank of Vietnam (SBV) said it will make appropriate moves related to credit with a focus on lending to priority sectors.
Hope for credit growth ceilings to be raised further
Last week, the central bank agreed to raise this year’s credit growth limits for several banks by 2 - 6 percent, dependent on the credit quality and capital adequacy ratio of each institution.
The three banks that will see the largest change in limits are Tien Phong Commercial Joint Stock Bank - TPBank (from 11.5 percent to 17.4 percent), Vietnam Technological and Commercial Joint Stock Bank - Techcombank (from 12 percent to 17 percent) and Military Commercial Joint Stock Bank - MB (from 10.5 percent to 15 percent).
Other banks that will enjoy raised limits include Vietnam International Commercial Joint Stock Bank - VIB (from 8.5 percent to 14.1 percent), Vietnam Prosperity Joint Stock Commercial Bank - VPBank (from 8.5 percent to 12.1 percent), Saigon Thuong Tin Commercial Joint Stock Bank - Sacombank (from 6.5 percent to 10.5 percent) and Vietnam Export and Import Commercial Joint Stock Bank - Eximbank (from 6.5 percent to 10 percent).
The Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) is the only one of the ‘Big 4’ to be granted a limit increase, from 10.5 percent to 14 percent.
The revisions are available to a narrower selection when compared to last year and show the central bank’s prudence amid the complications of the pandemic.
Nguyen Quoc Hung, Secretary General of the Vietnam Banks Association, said most of the banks receiving credit growth limit increases this year are those that meet the standards of Basel II, with some even meeting Basel III requirements. They are also banks that have reduced loan interest rates to support businesses.
However, experts from SSI Securities said the central bank should raise the credit growth ceilings further in the late third quarter or early fourth quarter of this year.
SSI hold that expanded limits will create conditions that will enable commercial banks to cut loan interest rates more widely. For example, Vietcombank, BIDV, VietinBank, MB, ACB, HDBank, Sacombank, and TPBank have officially announced reductions in annual rates by at least 1 percent from July 15 to the year’s end for clients hit hardest by the pandemic.
Meanwhile, deposit interest rates remain unchanged and are expected to maintain this trend for the short term.
Tightening credit for high-risk sectors
At the beginning of 2021, the SBV created three credit growth scenarios for the year.
The first scenario posits widespread COVID-19 vaccine coverage and the containment of the pandemic. This could see credit increases of 12 - 13 percent, perhaps even 14 percent. In the second scenario, if the pandemic lasts until June, social distancing measures are still in place and vaccination rollout is prolonged, the rate could stand at 10 - 12 percent. The third scenario suggests that credit growth could be at 7 - 8 percent if the pandemic lasts through the end of the year.
Nguyen Tuan Anh, Director of the SBV’s Department of Credit for Economic Sectors, said events so far are most similar to the third scenario as Vietnam suffers from the fourth wave of COVID-19.
However, credit growth in the first half of the year was far beyond the SBV’s expectation thanks to modest loan interest rates. As of June 21, the growth rate was 5.47 percent, considerably higher than the 2.45 per cent over the same period last year.
The ACB Securities Company forecast credit growth this year to be at 14 percent, equivalent to the highest rate in the best-case scenario, noting that it may even reach 15 - 20 percent amongst private banks.
ACB expects that credit demand will stay strong and credit growth will remain high in the last half of 2021, especially during the fourth quarter.
However, economic expert Nguyen Tri Hieu believes that difficulties arising from COVID-19’s latest resurgence will result in an increase in struggling businesses, which in turn will impact credit demand and quality.
SBV Deputy Governor Dao Minh Tu said all banking activities must ensure harmony between supporting businesses and the economy with guaranteeing safety for the banking system in the short, medium, and long term.
From now until the end of the year, the central bank will review and make the necessary revisions to credit growth targets for each credit institution, with priority given to those that reduce loan interest rates. It will take measures to ensure that credit flows into priority sectors.
In addition, the central bank will tighten credit for high-risk sectors and continue measures to assist clients in recovering production and business activities as they deal with the pandemic, Tu added.
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