Bank system’s credit growth target unlikely to be reached

October 15, 2018 - 09:00

According to the General Statistics Office, as of September 20 the banking sector’s credit growth was 9.52 per cent, much lower than the 11.02 per cent rate recorded a year earlier.

Ten major banks, including Vietcombank, HDBank, MB, Vietinbank, BIDV, VIB and VPBank, have nearly reached their credit growth limits.— VNA/VNS Photo

Compiled by Thiên Lý

According to the General Statistics Office, as of September 20 the banking sector’s credit growth was 9.52 per cent, much lower than the 11.02 per cent rate recorded a year earlier.

Analysts fear such a low rate means it will be difficult to achieve the full-year target of 17 per cent set by the State Bank of Việt Nam (SBV), especially when many major banks have almost used up their credit quotas.

They said according to current regulations, SBV sets a credit growth limit for each commercial bank depending on the bank’s health at the beginning of the year with credit growth limits ranging from 12 to 14 and 16 per cent. This is done to control credit growth for the entire banking system and to support Government targets.

Ten major banks, including Vietcombank, HDBank, MB, Vietinbank, BIDV, VIB and VPBank, have nearly reached their credit growth limits.

Of them, six had exceeded 10 per cent growth in the first six months of the year, with TPBank’s outstanding loans increasing by 16.2 per cent, HDBank’s by 15.1 per cent, LienVietPostBank’s by 13.9 per cent, Vietcombank’s by 11.4 per cent, and MB’s by 11 per cent.

Many banks are expected to petition the SBV soon for increasing their credit growth limits.

However, the SBV will not adjust upward credit growth limits for commercial banks, except in some special cases, for the rest of the year.

The special cases are banks that have been required by the SBV to support ailing credit institutions in their restructuring in 2018.

Banking experts believed that the credit slowdown would allow banks to pay more attention to credit quality and credit risk management.

Meanwhile, some lenders have seen very low credit growth. Techcombank, for instance, increased its credit by only 2.3 per cent in the first half.

The low credit growth has made many people worried about that production activities would likely be affected.

But many analysts are not concerned about the low credit growth, and even say it would be best if it ends up under the year’s target of 17 per cent because the global economy is facing problems and Việt Nam’s inflation rate is increasing, meaning the economy could face risks in the case of high credit growth.

The đồng is depreciating against the dollar because of the US central bank’s decision to hike the benchmark interest rate by 0.25 percentage points in late September and the escalating US-China trade war, and this would have an impact on Việt Nam’s fight against inflation.

An SBV official said inflation remains under 4 per cent but it needs to be closely monitored until the year-end, which is usually the time there is inflationary pressure due to many reasons.

So it would be better for Việt Nam to focus on the quality of growth, he said.

A central bank spokesperson said the credit growth target of 17 per cent set for the year remains valid, but would be amended if found necessary to meet the economy’s needs.

He also said that though credit growth might not be higher this year than last year, liquidity for the economy, especially for priority sectors, would be ensured.

Deposit interest rates remain headed upward

On September 5, Sacombank increased the interest rate on 13-month deposits from 7.6 per cent to 7.8 per cent and for 18-month deposits from 7.1 per cent to 7.2 per cent in case of accounts with over VNĐ100 billion (US$4.2 million)

Viet Capital Bank has the highest interest rate of 8.6 per cent for deposits of over two years.

Techcombank has increased its interest rates by 0.1-0.2 percentage points on short-term deposits.

Market observers said several banks have raised deposit interest rates by 0.1-1.4 percentage points in recent days.

In addition, the banks have also launched promotion programmes to attract more deposits.

Experts said banks’ liquidity needs have shown signs of increasing, and interest rates on the interbank market have followed suit.

According to data from the SBV, the overnight interest rate on interbank lending rose from 4.2 per cent in August to 4.52 per cent in early September.

The rate hikes have been attributed by analysts to banks having to ensure their maximum ratio of short-term funds used for medium- and long-term loans would be 45 per cent in 2018 and 40 per cent in 2019.

But many banking insiders also pointed out another reason: the US central bank’s hike of benchmark interest rate and the rate could be raised one more time before the end of the year.

This has caused the dollar to appreciate significantly against the đồng in both the official and unofficial markets.

Meanwhile, the central bank has ceased its intervention on the exchange rate by selling the dollar cheaply to commercial banks as it did in past months, thus also contributing to creating strong increase in the exchange rate between the đồng and the US dollar.

Faced with the situation, banks have been forced to hike interest rates on đồng deposits to prevent people from withdrawing their deposits converting them into dollars.

Analysts expect the deposit interest rates to continue rising but at modest rates of up to 0.5 percentage points. 

Environment tax hike expected to hit businesses

Environment protection taxes on petroleum products will be increased from January 1, 2019, according to a resolution recently passed by the National Assembly Standing Committee.

The tax on gasoline will be increased by VNĐ1,000 (4 US cents) per litre to VNĐ4,000.

Kerosene will be subject to VNĐ1,000, a hike of VNĐ700.

Taxes on lubricants and fuel oil will be raised to VNĐ2,000 from the current VNĐ900.

What are the likely impacts?

Many analysts said raising taxes on essential items such as fuel would affect the prices of all products, meaning the competitiveness of Vietnamese products would be hit.

Suppliers of petroleum products would raise prices, and almost sectors would be hit, with transport and agriculture possibly suffering the biggest shocks, they said.

Fuel costs now make up 23-35 per cent of transport costs in case of vehicles that use petrol, and 35-45 per cent in case of gasoline.

In the agriculture sector, fuel accounts for 35-40 per cent of the price of products.

Transport industry representatives said despite knowing that fuel prices are going to be raised, their businesses have no plans yet to hike prices since the market is in the throes of an oversupply.

In addition to higher environment taxes, transport operators will also have to pay for many additional services possibly arising from the tax hikes.

For instance, taxi owners need to have their meters verified again, which will cost VNĐ110,000 ($5) per vehicle.

A similar amount will be required for printing a price list for each vehicle if transport companies want to hike charges.

Then, transport companies have to register again with the transport, finance and taxation departments and the Centre of Industrial Safety Registration, which would involve a lot of time and money.

If transport enterprises hike prices to recoup the expenses, the costs of many goods will rise.

The Government’s 4 per cent inflation target would come under serious pressure, analysts said.

The Ministry of Industry and Trade has called for deferring the environment tax hike on fuels to a more suitable time after January 1 next year.

A ministry spokesperson said the date of the hike would coincide with the 12th lunar month, just before the Tết (Lunar New Year) holiday, severely impacting prices.

According to the General Statistics Office, prices rose by 3.57 per cent in the January-September period from a year earlier.

Many risk factors ranging from the international situation could affect prices during the remainder of the year, the analysts said.

In its latest Asia Development Outlook, the Asian Development Bank has raised the inflation forecast for Việt Nam to 4 per cent from 3.7 per cent this year, and to 4.5 per cent from 4 per cent next year. — VNS