Urging credit flow into production and business sectors

	Allocating credit room, motivation for banks to compete
	Control of major shareholders in banks

As of August 26, 2024, credit increased by 6.63% compared to the end of 2023, far from the target 15% for the whole year of 2024 that the State Bank set at the beginning of the year. Illustration photo: collected

Movement trends

With the fluctuations in the market, investment cash flows are shifting to diversify and choose the most suitable profit channel. As with stocks, since the beginning of the year, the number of newly opened securities accounts has continuously increased. According to data from the Vietnam Securities Depository (VSD), the number of domestic investor accounts increased by nearly 330,000 accounts in July 2024, 3 times higher than the previous month and the highest level in 2 years. As of August 26, 2024, the VN-Index reached 1,284.05 points, up 13.6% compared to the end of 2023.

With the gold channel, the average domestic gold price in the first 8 months of 2024 increased by more than 25.5% compared to the same period in 2023.

Although the real estate market is quiet compared to previous years, cash flow into this channel is still relatively strong, mainly due to expectations for infrastructure expansion, support policies from the Government and high demand for home ownership, especially in big cities like Hanoi and Ho Chi Minh City.

Furthermore, looking at the financial reports of the first half of 2024 of banks shows that credit is still pouring quite a lot into real estate. In a newly published report on the banking industry, VPBankS Securities Company said that real estate lending is still the segment that helps many banks increase credit growth. For example, at Techcombank, outstanding loans for real estate business increased by 14% after the first 6 months of 2024, making this outstanding loan account for nearly 34% of total outstanding loans to customers. At VPBank, outstanding loans for real estate business in the first 6 months of 2024 increased by 22% compared to the end of 2023, accounting for 22.5% of total outstanding loans. At some other banks, the ratio of outstanding loans for real estate business to total outstanding loans is quite high such as SHB, HDBank, Nam A Bank, MSB...

Previously, the State Bank of Vietnam (SBV) reported that by the end of June, real estate credit increased by 4.6%, of which real estate business increased by 10.29%. The proportion of real estate business credit accounted for 39-40% of total real estate credit.

Despite low profitability, banks continue to be a safe destination for cash flow in a volatile economic environment. Although deposit interest rates have dropped to an average of 6-7% per year, many people and businesses still choose to save instead of investing in higher-risk channels.

According to the report on the socio-economic situation in the first 8 months of 2024 of the Ministry of Planning and Investment (MPI), as of August 26, 2024, capital mobilization increased by 2.76% compared to the end of 2023. Many forecasts suggest that capital mobilization will increase further when mobilization interest rates will tend to increase slightly at the end of 2024 for banks to increase credit liquidity.

Cash flow is “hesitant” to go into production

However, the report of the Ministry of Planning and Investment pointed out the reality that the total registered capital added to the economy in the first 8 months of 2024 reached more than VND 2 million billion, down more than 5% compared to the same period last year. Even the target on the average registered capital scale per enterprise decreased from VND 15 billion to less than VND 10 billion in the past 2 years, and it recorded a decrease to less than VND 9 billion in the first 8 months of 2024, lower than the average level of the first 8 months of the year in the 5 years 2019-2023 (VND 12.2 billion). This reflects a more cautious mentality about the business investment plan of enterprises.

The fact that enterprises being “afraid” to pour cash into production and business is also reflected in the credit growth rate. As of August 26, 2024, credit increased by 6.63% compared to the end of 2023, far from the target 15% for the whole year of 2024 that the State Bank set at the beginning of the year.

Regarding this issue, according to economic expert Dr. Le Xuan Nghia, the current capital flow is almost "stuck" when the three largest credit outputs, namely export, real estate, and consumption, are still facing many difficulties. In particular, the export sector has shown positive signs, but the real estate market is still frozen while the collateral for loans of import-export enterprises is mainly real estate; people are tightening their spending, making it difficult for the consumer lending sector to grow as strongly as in previous years.

Experts also pointed out that cash flow pours into production slowly due to concerns about uncertainty in business prospects, when manufacturers face challenges such as an increase of labour costs, supply chain disruptions and competition from other countries... In addition, sharing the reality from the business community, Dr. Mac Quoc Anh, Permanent Vice President and General Secretary of the Hanoi Association of Small and Medium Enterprises, said that many enterprises, including small and medium-sized and micro-enterprises, still face many difficulties in loan procedures when commercial banks require collateral, along with their weak capacity, so they cannot meet the requirements of the bank's debt repayment plan...

Speaking at the Government press conference on September 7, 2024, Deputy Governor of the State Bank of Vietnam Dao Minh Tu said that the current lending capacity of commercial banks, including credit growth limits (room) as well as resources, liquidity sources... were all sufficient for credit capital needs, so it was important to promote borrowing needs of enterprises and their ability to absorb capital, so many other accompanying macro policies and solutions are needed to create conditions for enterprises to absorb credit capital.

According to experts and enterprises, an effective solution to bring cash flow into the manufacturing sector is through investment incentive policies, such as providing low-interest loan packages for priority sectors, innovation and start-up activities…, additional incentives for taxes and fees, strengthening public-private partnerships to motivate enterprises to expand production and recruit more workers… Furthermore, policies on investment in transport and logistics infrastructure are necessary, because they not only help reduce transportation costs but also increase the competitiveness of domestically produced goods; at the same time, it is necessary to build and develop industrial parks with synchronous infrastructure, increasing opportunities to join the global supply chain.