Credit growth low but on the right track

	Credit growth exceeds 13 percent in 2019
	Banks report higher profits
	Credit slowdown causes concern about access to bank loans

The efficiency of using credit capital has been improved.

Why was credit growth low?

According to the SBV, by the end of 2019, the credit reached 13.5 percent compared to the end of 2018. In comparison with the SBV's forecast made earlier this year, credit growth was less than one percent this year, the lowest point in the last five years. However, credit has focused on priority areas, production and business.By December 31, 2019, credit to agriculture and rural areas increased by about 11 percent, accounting for 25 percent of the total outstanding loans of the economy; small and medium enterprises increased by about 16 percent; and high-tech enterprises went up by about 15 percent.

Dr. Can Van Luc, a financial expert, said this resultwas positive growth with descending adjustment. Credit now accounts for 135 percent of GDP, a high level compared to the size of the economy, as well as the level of economic development. Therefore, banks are focusing on ensuring credit quality, directing it to practical needs of the economy. As a result, the quality of loans was getting better in 2019. By the end of 2019, non-performing loans (NPLs) decreased to 1.89 percent, including potential bad debts, the debt of Vietnam Asset Management Company (VAMC) was about 4.6 percent. According to Luc, the plan to bring NPLs to below three percent by 2020 is feasible.

In fact, the SBV has taken measures to "rein" in credit growth from the beginning of the year. Accordingly, the credit growth of credit institutions depends on their asset quality and the level of meeting operational safety requirements.Banks that meet Basel II standards will be allowed to loosen their credit growth targets by the SBV. However, it is difficult for state-owned banks, which account for half of the system's credit market share, to meet these standards because there is no reasonable capital raising plan. As a result, the overall credit has been lower than previous years.

Moreover, the credit decreased due to the declining demand in many industries, such as real estate, construction, steel and individual customer credit.In particular, according to experts, real estate businesses take the most bank loans. However,the SBV has repeatedly warned credit institutions to restrict lending to risky areas, including real estate, which has led the industry to reduce its borrowed capital and shift to corporate bonds recently. Therefore, the corporate bond market has grown stronglyin 2019.

According to Nguyen Duc Hung Linh, Director of Analysis and Investment Advisory for individual clients, SSI Securities Joint Stock Company, in 2019, the bond market, especially corporate bond market, continuouslyhadstrong growth in scale. The proportion of corporate bond market increased sharply (from 9.01 percent to about 10.47 percent of GDP), the volume of corporate bonds issued increased more than 20 percent compared to 2018.

Efficient use of capital

The socio-economic results in 2019 recorded a GDP growth of 7.02 percent, exceeding the National Assembly's target of 6.6-6.8 percent. Hence, the low growth rate of credit hardly affects the growth of the whole economy.

Assoc.Prof.Dr. DinhTrongThinh from the Finance Academy said the difference of credit growth this year was that it was spread over months, instead of "accumulating" at the end of the year as before. More importantly, credit efficiency for economic growth has been improved.

According to calculations, the credit growth rate required for one percent of economic growth has decreased rapidly from more than 2.2 percent in 2017 to an average of 1.4 percent in 2019. As a result, more and more banks and enterpriseshave expanded their capital mobilisation for production and business from raising capital in the financial - monetary market.According to the World Bank’s (WB) report on business environment published at the end of October, Vietnam's credit access index ranked 25 per 190 economies, second among ASEAN countries.

In 2020, the Governor of the SBV issued a directive on the target of credit growth of about 14 percent with adjustment based on the actual situation.The Governor also asked credit institutions to implement monetary and credit solutions according to the motto of extending credit along with safety and efficiency and ensuring capital supply for the economy.This is considered a reasonable number for 2020, because credit institutions have to actively control credit growth to meet Basel II standards. In addition, capital flows and new business models such as fintech, peer-to-peer lending, microfinance institutions, and stock and bond markets, especially corporate bonds will increase capital supply to the economy, reducing the burden on the banking industry.

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Regarding the impact of low credit growth on the economy, experts said this was not worrying,because the globaleconomic situation in 2020 would have many negative changes, but the domestic economy has grown thanks to the quality depth, moving into high value-added industries.In particular, economic growth in 2019 was high despite credit growth not reaching the set target. Therefore, the views on economic growth, based on credit growth in Vietnam may not be appropriate, so there must be strategies to develop a more diversified capital market, creating more capital channels for entities of the economy, leading to harmonious and sustainable development.