JOURNALIST: - Sir, over the past decade, negative credit growth was only observed in 2014, 2018, and the first two months of 2023. How do you interpret this trend?
Assoc.Prof.Dr. NGUYỄN HỮU HUÂN: - Typically, credit growth in the initial months of the year is influenced by the Lunar New Year, with a noticeable surge occurring around March due to seasonality. However, the commencement of this year witnessed negative credit growth—the most unprecedented in the past decade—primarily because the credit growth at the end of the previous year was exceptionally high. In December 2023, credit increased by 50% compared to the cumulative increase over the preceding 11 months.
The unexpectedly high credit growth observed at the end of 2023 was driven by several banks aiming to meet their credit growth targets to utilize the room limit granted by the State Bank. This strategic move allowed them to avoid facing room reductions in 2024. In this scenario, banks actively encouraged customers to borrow money, assuring them of the option to repay it the following year with 0% interest. Consequently, the impressive figures reported at the close of the previous year are somewhat distorted. On the other side, borrowers from the end of the preceding year began repaying their debts, as there was no real necessity for additional credit. This phenomenon is a major contributor to the negative credit growth observed. In reality, when we subtract the virtual factors from the end of the previous year, the credit growth in the initial two months of this year would likely exhibit only a slight negative or possibly even positive growth.
To put it succinctly, the credit growth surge observed last year essentially involved banks borrowing against this year's credit balance, leading to a repayment obligation at the beginning of the current year. Consequently, while credit growth returned to positive figures in February, the cumulative total for the initial two months remained negative. Presently, positive signals are emerging from the market, particularly in terms of import and export activities. Notably, there has been a substantial increase in imports. This uptick is attributed to Vietnam's predominant importation of raw materials to support production and the subsequent export of goods. The surge in imports indicates that businesses are securing new orders for importing essential raw materials, presenting a relatively optimistic signal for economic activity.
- Money remains stagnant in banks without proper circulation, and the government is urging the banking sector to boost credit growth to prevent congestion and delays. Are there suitable solutions to facilitate the flow of credit capital into the economy?
- Recently, the State Bank has introduced various solutions, primarily impacting short-term interest rates. However, businesses seeking capital exhibit two key characteristics: a requirement for long-term capital and low-interest rates. Drawing parallels with the 2007-2009 crisis period in the United States, where short-term interest rates were close to 0%, such measures failed to spur economic growth. During that time, the US Federal Reserve (Fed) initiated quantitative easing packages (QE1, QE2), influencing low but long-term interest rates in the economy, resulting in increased demand for credit. For instance, fixed interest rates on home loans for the first year with subsequent floating rates pose risks that may not stimulate loan demand. However, if low fixed interest rates are applied for extended periods, such as 5 or 10 years, individuals would likely feel more confident in borrowing. This represents a supply-side solution.
Another primary reason for sluggish credit growth is subdued demand, stemming from the ongoing weak recovery in both domestic and international economies, notably influenced by elevated US interest rates. Presently, the US economy remains robust, and the Federal Reserve (Fed) sees no grounds for interest rate reductions. Typically, interest rate cuts are implemented in response to the risk of economic recession or low growth. As long as the Fed maintains higher interest rates, global monetary policies will continue to tighten, keeping interest rates elevated. This dual approach aims to control inflation and curtail the outflow of money into the United States.
Vietnam is currently grappling with a growth challenge rather than inflation, making the extended maintenance of low-interest rates in the context of elevated global interest rates potentially detrimental to the Vietnamese economy. The interest rate differential between Vietnam and the US has led to a flow of capital toward the US. Evidence of this trend is the continuous withdrawal of capital by foreign investors from Vietnam, contributing to pressure on the exchange rate. It's crucial to strike a balance in addressing these factors.
Therefore, tackling the current credit growth issue requires a dual approach, addressing both the demand side and the supply side simultaneously. Two pivotal questions to answer are how businesses can access capital and how they perceive the need for borrowing capital. By analyzing and understanding these dynamics, a comprehensive solution can be formulated to effectively address the challenges in credit growth.
- Sir, there are suggestions that banks should adopt a more flexible approach in applying credit conditions to facilitate businesses' access to capital, particularly by considering unsecured loans. What are your thoughts on this?
- Unsecured lending poses significant challenges as it resembles a form of subprime lending. While unsecured loans can stimulate credit growth, the potential downside is an increase in bad debts. The government has indicated this direction in meetings since the previous year, but no bank has taken the bold step because the responsibility ultimately falls on them. The Government or the State Bank of Vietnam does not provide guarantees that, in the event of bad debt arising from unsecured loans, they will intervene. Consequently, banks do offer unsecured loans but maintain a very small percentage in the overall credit structure to mitigate associated risks.
Banks may consider raising unsecured lending rates, but such an approach wouldn't be universally applicable. Businesses must still meet specific conditions before banks are willing to extend unsecured loans, ensuring the sustainability of the overall system. Hastily promoting unsecured lending without prudent considerations could lead to a situation reminiscent of the US subprime debt crisis during 2007-2009.
- Thank you very much.
