It necessitates the cooperation of various ministries, branches, and local authorities to address legal intricacies related to investment projects, enhance the business environment, and streamline investment processes and administrative procedures. Through these concerted efforts, we can stimulate domestic consumption and foster an environment conducive to credit growth.
Lackluster Credit Demand
As of December 31, 2023, the capital adequacy ratio for state-capitalized commercial banks stands at 9.64%, while joint-stock commercial banks maintain a ratio of 11.86%. This indicates that commercial banks still possess the capacity to extend credit and take on additional risks while adhering to legal frameworks. However, despite interest rates reaching the lowest levels in the past two decades, the overall demand for credit in the economy remains subdued. Additionally, reduced purchasing power in the market and a cautious approach to spending by individuals are contributing factors affecting the demand for consumer loans.
In the initial months of 2024, the real estate market remains stagnant, coupled with disruptions in global supply chains, contributing to a hesitancy among businesses to invest. These factors exert a significant impact on key economic indicators such as exports, consumption, industrial production, and private investment, all of which are experiencing sluggish growth. Consequently, the demand for capital in the economy remains low, presenting challenges for anticipated credit expansion in 2024.
The State Bank of Vietnam has reported a decrease in credit for January, albeit with a smaller decline observed in February. This has prompted expectations of higher credit growth in the coming months. The State Bank remains vigilant, monitoring developments throughout March, the first quarter, and subsequent periods to devise specific measures aimed at promoting credit growth and overall economic expansion. Nevertheless, achieving the desired credit growth in 2024 will require the implementation of a comprehensive set of synchronized solutions to address the existing challenges.
Emphasizing Key Measures for Credit Growth
During the 2024 Banking Industry Implementation Conference, the State Bank outlined its objective of actively managing monetary policy to support economic growth, targeting a range of about 6-6.5%. Additionally, a credit growth target of 15% was assigned to credit institutions for 2024.
While there is ample potential to achieve this credit growth target, commercial banks are urged to persist with their current strategy of maintaining low lending interest rates relative to the market. This involves proactively reducing operational costs to establish a foundation for lowering lending interest rates, thereby contributing to market stability. Another crucial aspect is the ongoing effort to address challenges, reassess and simplify processes and procedures, and enhance the adoption of technology and digital transformation in the credit approval process. This initiative aims to expedite the processing time for customer requests.
It is imperative to actively promote preferential credit programs that target specific customer groups while continuing to invest in priority areas aligned with government policies. Notably, the support program for the forestry and fisheries sectors has proven highly successful. Following the disbursement of the entire VND 15,000 billion in 2023 by commercial banks, the program has been expanded to a new package of VND 30,000 billion. This expansion aims to encourage business households to scale up their activities in forestry and aquaculture, providing crucial raw materials for seafood processing and export activities. This sector not only holds national importance but also serves as a driving force for economic growth.
Leadership Role for the State Bank
The State Bank of Vietnam is currently adhering to a stable monetary policy. However, beyond this, active collaboration is essential to support credit institutions in advocating with the Government, various ministries, branches, and local authorities to resolve legal challenges promptly. This approach aims to expedite the implementation of projects funded by loans. As an illustration, specific lending support programs, as directed by the Government and the State Bank, need to reinforce their implementation strategies. One notable initiative involves intensifying the disbursement of a credit package totaling VND 120,000 billion earmarked for the development of social housing and worker housing. The State Bank is playing a crucial role in expanding its involvement with joint-stock commercial banks to facilitate the realization of this program.
It is advisable for the State Bank of Vietnam (SBV) to contemplate the extension of Circular 02/2023/TT-NHNN, which addresses the restructuring of debt repayment terms and maintaining the same debt group. This extension would provide essential support to customers grappling with challenges stemming from the prevailing global situation, particularly businesses entwined in supply chains. Failure to extend this circular beyond its expiration on June 30, 2024, could heighten the risk of bad debts for commercial banks. Such a scenario would necessitate a shift in focus towards resolving existing debts and may impede efforts to consider new disbursements.
Moreover, altering the debt group for current outstanding loans would compel commercial banks to increase provisions for credit risks, as outlined in Circular 11/2021/TT-NHNN. This would, in turn, raise the costs for commercial banks, posing hurdles in their endeavors to reduce lending interest rates—a goal they are actively pursuing. Thus, extending the supportive measures under Circular 02/2023/TT-NHNN is crucial for fostering a more sustainable financial environment and supporting businesses facing ongoing challenges.
There are current concerns surrounding Circular 06/2023/TT-NHNN, which aims to amend and supplement various articles of Circular No. 39/2016/TT-NHNN. While this amendment seeks to address shortcomings, it is highlighted that without further adjustments, projects facing legal issues or experiencing capital shortages may become ineligible for continued implementation. This predicament leaves businesses with limited alternatives, ultimately resulting in a stagnation of capital and lacking viable solutions.
Circular 06 introduces a broad prohibition on certain subjects from borrowing, making it easier for commercial banks to reject loan applications, particularly in the real estate sector. This has the potential to hinder the collective efforts of the government, various agencies, branches, and the entire banking system in revitalizing the challenging real estate market. The overarching impact could impede progress in this sector, which is currently grappling with considerable difficulties.
