Credit quota must be eliminated as soon as possible

NA Delegate Trinh Xuan An (Dong Nai province) said that the credit quota is no longer appropriate in the contemporary setting.

This topic dominated the 3rd session of the XV National Assembly of Vietnam, and NA Chairman Vuong Dinh Hue described it as a "very good problem" because it was the first time the National Assembly deputies had raised concerns about the content.

Administrative tool

The Governor of the State Bank of Vietnam (SBV), Ms. Nguyen Thi Hong, stated that the SBV has been using credit quotas since 2011 and has found them to be an effective measure in credit control.

NA Delegate Trinh Xuan An (Dong Nai province) agreed that the banking industry must be secure and risk-free. However, the annual credit quota system still appears to be "subsidy" management and is no longer appropriate in the contemporary setting.

The NA Chairman also suggested developing credit criteria to ensure consistency, publicity, transparency, and compliance with the current laws on the basis of operations, financial capacity, and credit expansion capacity of each credit institution. The SBV should limit  and proceed to abolish the current administrative-based credit quota management.

Many financial experts believe that eliminating the credit quota is vital 

Credit quota to be removed

The SBV, according to Mr. Pham Xuan Hoe, former Deputy Director of the Banking Strategy Institute, can regulate capital for the Vietnamese economy for the following reasons:

First, when commercial banks attained Basel II, or even Basel III, their "health" improves dramatically. There was plenty of bank liquidity, and there was no credit race to threaten the banking system. Commercial banks take deposits from businesses and individuals and then provide loans. This is really a matter of reallocating economic resources, not a "application-approval" tale.

Second, the SBV has additional instruments including the loan to deposit ratio (LDR), required reserve ratio, short-term capital ratio for medium and long-term loans, and other safety ratios.

"With the LDR rate, the SBV may regulate credit. If the SBV wants to limit  credit growth, it can raise the required reserve ratio”, said Mr. Pham Xuan Hoe.

As a result, Mr. Pham Xuan Hoe suggested that the SBV would soon discontinue the use of the credit quota, as it is an administrative instrument that other central banks have abandoned.

If the credit quota is withdrawn, Dr. Can Van Luc, a financial expert, believes that an alternative policy tool should be used, such as maintaining the capital adequacy ratio under the Basel II with both the numerator and denominator, where the former is equity and the latter is investment credit.

"In terms of the roadmap to abolish the credit quota, if credit does not heat up within around 10-12 percent every year, the SBV could use the capital adequacy ratio instead of the credit quota," Dr. Can Van Luc stated.