A boost needed for credit growth

The outstanding loans increased by 3.17% at the end of May 2023 compared to the end of 2022

>> Low credit growth makes large banks curb capital mobilisation

According to the State Bank of Vietnam (SBV), outstanding loans increased by 3.17% at the end of May 2023 compared to the end of 2022, a far lower rate than the 8.2% increase in the same period last year.

More flexible credit conditions

On June 16, the SBV decided to reduce a variety of policy rates, including interest rates on savings deposits with a duration of six months or less and short-term lending rates for priority sectors, with a 0.25 - 0.5% reduction depending on the kind of interest rate. The ruling goes into effect on June 19, 2023. The SBV has decreased policy rates for the fourth time in a row since the beginning of 2023.

Meanwhile, commercial banks in Vietnam have continued to cut lending rates. LPBank, in particular, has decreased lending interest rates by 1% for consumers, retail enterprises, and, in particular, manufacturing and business units... Credit expansion, on the other hand, remains modest.

This is primarily due to the fact that companies' capital absorption capacity is relatively low, but it is also due to the fact that many firms do not match the conditions imposed by banks, particularly the requirements for collateral assets. Enterprises have no collateral for new loans, despite the fact that banks have restructured the debt and maintained the debt group for enterprises intact.

Many experts argue that banks should be more open and flexible with loan terms. As a result, rather than requiring firms to have collateral, banks should promote unsecured lending or cash flow-based financing...

In addition to banking solutions, SBV Deputy Governor Pham Thanh Ha stated that increasing economic demand is critical. So, ministries and sectors should continue to promote policies that support enterprises, develop small and medium enterprises, remove barriers in the consumption and real estate markets, thereby removing obstacles for businesses, and improve financial capacity and access to credit.

>> How to remove bottenecks for bank loans access

Effort from many sides

Vietnamese enterprises are currently battling a lack of orders, forcing them to curtail output. Therefore, they are not interested in bank loans, even if interest rates fall further. That is, the largest barrier for firms is increasing output, and once output is cleared and production improves, loan demand will rise again. However, removing this bottleneck requires the engagement of ministries, sectors, and municipalities, as well as government backing.

Experts believe that in the context of exports struggling owing to a drop in global demand, it is vital to rely more on the home market. To accomplish this, strategies that focus on generating domestic demand, such as lowering taxes, fees, and charges, are required...

According to Dr. Le Duy Binh, Director of Economica Vietnam, public investment and domestic consumption are variables within the domestic force that we can take initiative in, and if efforts are sustained successfully, they would help partially offset the drop in exports.

Another approach advocated by experts is to encourage tourism, particularly to attract international travelers, as this is the best way to promote "on-the-spot export".

Vietnam must establish a system of diversified and high-quality products to fulfill the diverse demands of numerous tourists in order to entice them to return multiple times. Ms. Nguyen Thi Le Huong, Deputy General Director of Vietravel, said Vietnam needs synchronized solutions to reposition tourism brands and goods in a more appealing manner and in keeping with visitor habits that have changed significantly since the epidemic.

In addition to improving the quality of human resources, promoting marketing and communications, and implementing digital transformation, special attention should be paid to destination management in order to increase the number of tourists returning to Vietnam and ensure a healthy tourism environment.