Boosting credit to support economic growth

Vietnam’s credit growth hit 8% in the first half of 2017, the highest level recorded in recent years and the full-year figure is highly likely to meet the target of 18%, given the fact that credit growth usually accelerates in the final months of the year.

Boosting credit to support economic growth

According to the State Bank of Vietnam (SBV) the 18% credit growth target is appropriate with the government’s economic growth target of 6.7% but recently Prime Minister Nguyen Xuan Phuc stated that the SBV could aim for even higher credit growth.

A number of National Assembly deputies also suggested that the target could be expanded by 2 percentage points to further support economic growth. The central bank’s governor also left this option open, stating that credit growth could be higher if macroeconomic conditions and inflation data permit it.

Supporting growth at a reasonable level is one of the SBV’s monetary policy goals, besides curbing inflation, stabilising the macro economy and ensuring the stability of the currency market. Therefore, in addition to measures to expand credit, it is necessary to lend cautiously and pay attention to credit quality, which are also major factors in stimulating economic growth.
Strong credit growth has significantly contributed to the positive economic performance in the first half of the year and it is also the responsibility of the banking system to meet the GDP growth target in the second half of the year.

It should be noted that in the final quarters, when pressure from inflation increases, the task of guaranteeing macroeconomic stability will also force the SBV to be more cautious when making their policy decisions. It remains a key task for regulators and credit institutions to control credit growth and credit quality.

The economy currently requires large amounts of capital and although the stock market has seen certain growth, it is still not a major channel in providing capital for enterprises, therefore, this task is still placed on the shoulders of the banking system. Boosting credit growth to the 18%-plus level necessary to ensure the economic growth rate of 6.7% requires more efforts from the banking system.
Whether to increase the room for credit growth above the 18% level or not should be given careful consideration based on macroeconomic data and the health of each bank. In the case credit growth being higher, it is necessary to channel credit to productive sectors, start-ups and infrastructure projects, instead of property projects.

In order to meet these goals, banks should be more aggressive in restructuring and resolving bad debt, in addition to simplifying procedures to facilitate enterprises’ access to capital.
First of all, the National Assembly’s resolution on tackling bad debt should be implemented immediately in a serious and effective fashion. Secondly, a specific plan must be formulated to reduce lending interest rates to productive sectors, in accordance with inflation data, bad debt resolution results and the economic growth target.