An extra push needed for credit growth

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A modest credit recovery

Over the years, Vietnam's banking sector has developed several practical strategies for boosting loans. Despite the pressure on the USD/VND exchange rate, the SBV did not hike policy rates, allowing banks to keep lending rates low.

Not only that, but the SBV often directs lenders to reduce expenses in order to lower lending rates.

Furthermore, the SBV proposes extending the loan structure and maintaining debt categorization for troubled clients until the end of 2024, rather than ending in late June. This action not only alleviates the strain on businesses to repay interest, but it also prevents debt transfers. As a result, they could get additional loans to revive production and business.

Meanwhile, banks are attempting to stimulate credit growth by keeping lending rates low despite the growing interest rate trend. The current average interest rate on new loans at banks is only 6.05% per year, 1.04% lower than at the end of 2023.

However, credit growth is modest due to the economy's poor credit demand in the context of production, and commercial activity continues to face significant challenges.

According to the most recent State Bank of Vietnam (SBV) figures, credit increased by only 1.95% from the end of 2023 as of May 10th, 2024, indicating an extremely low growth rate.

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More solutions to be required

To promote credit growth, the SBV has recently asked credit institutions to adopt effective credit growth solutions, satisfy the economy's lending demands on schedule, and strive for system-wide credit growth of 5 - 6% by the end of 2Q24.

That said being, many experts are concerned about the aim. "Credit growth of 3-4% in less than two months is not easy in the context of credit demand being as poor as it is today," said an expert, adding that by the end of 1Q24, credit had grown by 1.34%, but by May 10, it had only increased to 1.95%, implying credit growth of around 0.6% in 40 days.

As a result, attempts by the Vietnamese banking sector to stimulate credit growth are solely on the supply side while credit demand remains low.

Dr. Le Duy Binh, Director of Economica, also stated that the banking sector's solutions are merely a key to opening credit doors. The second aspect is the demand for and usage of capital by individuals and businesses. In this view, in order to boost credit growth, ministries, sectors, and localities must work together to solve production and business challenges. Credit demand can only grow again after output has recovered.