Local banks seek approval for rise in credit growth limit

The State Bank of Vietnam annually assigns a credit growth quota for each bank to control lending and achieve money supply and inflation targets set by the National Assembly.

Nghiem Xuan Thanh, chair of Vietcombank, recently noted his bank had reached 13% growth in the first half of 2017, which is only 3% points shy of its annual 16% allotment by the SBV.

Vietcombank, said Mr Thanh, therefor submitted a formal request to the SBV asking the allotment to be increased to meet with the rising appetite for capital of the business community.

Mr Thanh noted Vietcombank is optimistic about achieving credit book growth of its allotted 13% this year through introduction of new products like student loans and used car loans, plus tapping into stable, efficiently managed small to medium sized businesses.

Our lending focus, he noted, has changed to quality above quantity of borrowing clients and as a result, the bank prefers to engage clients on the nature of the financing needs they face instead of rushing to approve all credit applications.

Vietnam International Commercial Joint Stock Bank (VIB) in turn submitted a similar request saying that it had used 15.7% of its 16% quota for 2017 in the first six months of the year.

Han Ngoc Vu, general director of VIB noted the bank had asked SBV to expand the credit growth limit to provide more scope for lending to meet rising capital demands, especially at the end of the year during peak business and spending seasons.

VIB has used up almost all its entire credit growth quota of 16 per cent assigned for 2017, said Mr Vu, noting outstanding loans of the bank reached nearly US$3.3 billion in the first half, up by 15.7% since the beginning of 2017.

Meanwhile the credit growth of HDBank as of the end of June reached 18% against its 20% quota assigned by the SBV. The lending growth of the bank in the first half of 2017 was primarily from short-term loans worth US$2.38 billion, accounting for 51.6% of the total outstanding loans of the bank.

Outstanding loans of the Vietnam Prosperity Commercial Joint Stock Bank (VPBank) in the first half also grew by 12% to US$7.7 billion. VPBank has only 4% left from the assigned credit growth limit of 16% to develop lending in the remaining six months of 2017.

However, credit growth may be illusory

However, all local banks may not be as healthy as their current credit growth may make it appear.

Many leading experts caution that it’s important to note that local bank profits from the uptick in credit growth will largely be wiped away and turn into a loss as the banks face settling with their bad debts and the Vietnam Assets Management Company yet this year.

Vietnam is still suffering the fallout from a 2011 banking crisis and the resulting bad debts, caused by unwarranted and excess lending into segments of the economy such as real estate.

Vietnam Prime Minister Nguyen Xuan Phuc set the wheels in motion to facilitate the implementation of the National Assembly resolution on the bad debt settlements starting August 15.

The economy is in a demanding situation, with economic growth in the first half of 2017 falling woefully short of the target at just 5.73%, credit growth could boost the GDP—and yet bank bad debts from 2011 are to be resolved.

It’s a situation that could turn from bad to worse and lead to further monetary problems if care is not meticulously exercised by the banking system in implementing credit policies.