Should credit growth targets be eliminated?

Nguyen Hung, General Director of TPBank, stated that in Q3 2024, credit demand at the bank has increased. Individuals and businesses have a greater need for loans, providing a basis for TPBank to expand its lending from now until the end of the year.

According to the latest directive from the State Bank of Vietnam (SBV), commercial banks that achieve 80% of their credit growth targets for the year 2024 will be allowed to adjust their credit limits upwards based on their credit ratings.

This positive move from the SBV comes as statistics show that as of August 26, overall credit growth in the banking system has only increased by 6.63% compared to the end of last year, significantly below the 15% target set for the entire year.

Facilitating Banks to Expand Lending

The SBV notes that, given the significant disparity in lending rates among banks, the regulator is rotating credit growth limits. Some banks are experiencing low or even negative growth, while others are nearing the targets set by the SBV. Consequently, the SBV is proactively adjusting credit growth targets.

Reports indicate that in the first half of the year, several banks, such as VPBank, MB, Nam A Bank, MSB, HDBank, ACB, Techcombank, and LPBank, have achieved high credit growth rates exceeding 10%. Many commercial banks are actively pushing capital into the market as credit growth for the first eight months of the year has not met expectations.

Nguyen Hung, General Director of TPBank, stated that in Q3 2024, credit demand at the bank has increased. Individuals and businesses have a greater need for loans, providing a basis for TPBank to expand its lending from now until the end of the year.

Currently, the SBV is also allocating credit limits to other banks, and TPBank has prepared its funding sources. Liquidity from capital mobilization is quite favorable, and with abundant funding, the bank is just waiting for real market demand to boost credit growth. TPBank expects to achieve around 16% credit growth in 2024, having already increased by about 8% since the beginning of the year.

"Business credit demand is strong, though personal loan demand remains slow but is expected to improve by the end of the year. Interest rates are expected to stabilize and decrease, especially as the USD/VND exchange rate cools down with the Federal Reserve (FED) anticipated to cut rates at least twice this year," Nguyen Hung said.

Along with assigning additional credit growth targets, the SBV also requires credit institutions to ensure that credit growth is safe, effective, and sound, minimizing the increase of non-performing loans and focusing credit on production, priority sectors, and economic growth drivers as directed by the government and the Prime Minister. Tight control is also required for high-risk sectors.

A representative of Military Bank (MB) believes that being assigned credit growth targets by the SBV motivates commercial banks to manage, supervise, and control credit capital effectively to ensure safe and efficient business operations.

Credit Limits Cannot Be Eliminated Yet

One of the factors mentioned by the regulator in communications with credit institutions is the continued implementation of the National Assembly and Government's policy on gradually removing credit growth limits.

According to Associate Professor Dr. Nguyen Duc Trung, President of Ho Chi Minh City University of Banking, given the current economic context, it is not feasible to fully remove credit limits, especially as the SBV is managing monetary policy linked with inflation control and macroeconomic stability. Banks are specialized enterprises, and removing credit limits without this regulatory control could increase risks. If this happens, the economy could be affected, necessitating balanced policies. However, if Vietnam’s economy becomes large enough, removing credit limits could be considered.

In a recent report to the National Assembly, SBV leaders explained why credit limits have not been removed. Maintaining credit limits helps ensure the safety of the banking system, contributes positively to inflation control, supports economic growth, and maintains macroeconomic stability.

Currently, the pressure on capital balancing for the economy (particularly medium- and long-term capital) continues to weigh heavily on the banking system, with risks of term mismatches and liquidity issues (as credit institutions primarily mobilize short-term funds but lend long-term).

If banks were to increase credit without control measures through safety targets and credit limits, it could lead to a return to the high credit growth rates seen before 2011.

"This not only increases non-performing loans and threatens the safety of the system but also poses risks of macroeconomic instability and inflation. Removing this measure needs to be done cautiously, with an appropriate roadmap to ensure necessary conditions and gradual implementation in line with market conditions," the SBV leadership explained.

Stable Lending Rates

Trần Khánh Hiền, Director of the Analysis Division at MBS Securities, believes that credit demand will continue to rise strongly from mid-year as production and investment accelerate in the latter months. For the first seven months of the year, the Industrial Production Index (IIP) increased by 11.2%, and the Purchasing Managers' Index (PMI) reached 54.7 in July, with both public and private investments showing improvement.

MBS forecasts that the deposit interest rates for major commercial banks could increase by an additional 0.5 percentage points to 5.2% - 5.5% by the end of the year. However, lending rates are expected to remain at current levels as regulators and banks work to support businesses in accessing capital.

Dinh Quang Hinh, Head of the Macroeconomics and Market Strategy Department at VNDIRECT Securities, anticipates that the rate of increase in deposit rates will gradually decrease towards the end of the year, mainly driven by credit growth prospects.

The forecast for the average 12-month deposit rate is expected to rise to 5.2% - 5.3% by the end of the year, lower than the previous forecast of 5.3% - 5.5% per year. This change is based on the likelihood of the FED cutting rates more than previously anticipated, which would provide the SBV with more room to manage monetary policy more flexibly.

In its latest directive, the SBV also requires credit institutions to continue maintaining stable deposit interest rates, enhance cost-saving measures, simplify loan procedures, and apply information technology and digital transformation to reduce lending rates.