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2015: Credit Growth Target Increased

Early this year, the State Bank of Vietnam (SBV) set the credit growth target of 13%-15% for 2015, which is higher than that of 12-14% for 2014. It is necessary to increase credit growth rate, said Le Xuan Nghia, a member of the National Monetary and Financial Policy Advisory Committee, as it is hard for a stagnant credit market, a consequence of any financial crisis, to turn around.

The encouraging developments and positive credit growth rate of nearly 13% in 2014 have given reasonable grounds for raising credit growth target for 2015.

Credit growth target of 13-15%

Dr. Tran Du Lich, a member of the National Monetary and Financial Policy Advisory Committee, said on the media that with general market conditions improving and real estate industry gradually turning the corner, the capital needs of enterprises in this year would likely be higher than those in the previous year.

The latest report of the National Financial Supervision Committee also showed that in the first two months of 2015, macroeconomic indicators were in a much better shape. In particular, production recovered relatively well; inflation was low; USD interest rate was maintained at record low level; business and consumer confidence returned, etc. These signal a brighter economic landscape which will fuel further credit growth.

Given the results in 2014, many banks consider the 13-15% target realistic and achievable. At the moment, through preferential and tailored loan packages, enterprises’ access to capital is becoming easier and cheaper. Especially, short-term interest rate of 7-9% is considered affordable by many enterprises.

Despite the target increase, many banks said that they will not be obsessed with hitting their targets per se. Rather, they will remain prudent to make sure that their lending is commensurate with their fund raising capacity while maintaining sound liquidity position, improving portfolio quality, and limiting non-performing loans.

The SBV also notes that credit growth must be driven by various macroeconomic factors such as the volatility of world oil prices. If necessary, the SBV will increase this target, e.g. to 17%, for the economy to maintain its growth rate of over 6.2% and to ensure macroeconomic stability.

More accommodative monetary policy

Even though there are no instructions from regulators, both deposit and lending rates are trending downwards. Deposit interest rates fell in early March within a broad range of 20-40 basis points a year. The reasons for falling interest rates are the excess liquidity of commercial banks, difficulties in making loans, limited effective investment channels, thus low capital mobilization needs.

Currently, deposit rates offered by most commercial banks range from 4% to 6.5% per annum depending on the tenor. Only a few banks maintain the 7% p.a. rate, which is only applicable to some special tenors or special deposit programs. The above mentioned deposit interest rates are the lowest in the last 5 years.

In his year-end speech of 2014, SBV Governor Nguyen Van Binh affirmed that the SBV would find ways to further lower lending rates to support enterprises, especially those for medium- and long-term loans. Specifically, if macro conditions become more accommodative, the SBV would seek to decrease the medium- and long-term lending rates by 1% to 1.5% to further assist enterprises in their long run development. In fact, in 2014 and early 2015, enterprises have had growing needs for medium- and long-term loans to expand production, improve technology, etc. to get well prepared for bilateral and multilateral economic partnership agreements such as ASEAN, TPP, etc. Thus, further lowering the medium- and long-term lending rates is a move in the right direction, helping enterprises to have better access to loans and further boosting credit growth.

Lending rates on the market at this point are sharply down, at 7-8% p.a. across the board.  For good-rated customers, interest rates can be as low as 5-6% p.a. Medium- and long-term interest rates are 9-10% p.a. and those of consumer loans 10-12% p.a. Nevertheless, some export firms say that they need lending rates to fall even lower, as when Vietnam becomes a member of common markets as a result of bilateral and multilateral partnership/trade agreements, local businesses will face more intense competition from other companies  from China and Thailand where interest rates are significantly lower than those in Vietnam.