Mechanisms for bolstering "bolder" and more efficient credit flow

Several banks have been consistently announcing reductions in their lending rates to customers. Photo: SHB

Streamlining and disclosing lending rates

According to a report from the State Bank of Vietnam (SBV), by the end of February 2024, the credit supply within the economy had seen a decrease of 0.72% compared to the close of 2023. Analyzing by economic sector, as of the end of January 2024, the outstanding loans in agriculture, forestry, and fisheries were about 950.8 trillion VND (down 0.17%, representing 7.05%); industry and construction stood at nearly 3.46 quadrillion VND (down 0.13%, accounting for 25.71%); and trade and services reached nearly 9.06 quadrillion VND (a reduction of 0.91%, making up 67.23%). In addition, the real estate sector's credit amounted to approximately 2.89 quadrillion VND, marking an uptick of 0.23% compared to the end of 2023, representing 21.46% of the total outstanding economic debt, with a bad debt ratio of 2.73%. Credit in the securities sector was close to 111.3 trillion VND, accounting for 0.83% of the total outstanding debt, showing a growth of 2.56% compared to the end of 2023.

The SBV has assessed that with plentiful liquidity and significant room for credit expansion, financial institutions currently find themselves in a favorable position to extend loans to the economy.

Mr. Pham Duc An, Chairman of the Board of Directors of Agribank, indicated that the bank is proactively implementing customer support programs following the directives of the Government and the SBV, such as the social housing loan program, worker housing, and the renovation and reconstruction of old apartment complexes under the 120,000 billion VND initiative. To date, 8 projects have been approved, totaling 2,470 billion VND, with the actual outstanding debt currently at 420 billion VND. For the forestry and aquaculture sectors, a preferential interest rate credit program was deployed with 3,000 billion VND in 2023, with plans to extend the program by an additional 5,000 billion VND. Moreover, Agribank is also actively participating in the 1 million hectare high-quality rice program, associated with green growth in the Mekong Delta region.

At BIDV, Chairman Phan Duc Tu revealed that since the beginning of the year, BIDV has disbursed over 470,000 billion VND in loans to the economy. However, this amount of lending is still less than the debt repayment by individuals and businesses to the bank (nearly 485,000 billion VND), leading to a slight reduction in BIDV's outstanding debt compared to the end of 2023 (about 1%), but still reflecting a growth of 13.5% compared to the same period in 2023. BIDV's credit resources are concentrated on three growth drivers and five priority sectors, alongside ongoing efforts to restructure debt and assist customers...

Notably, in line with directives from the Prime Minister and the SBV, numerous banks have further announced adjustments to reduce lending rates or introduced special credit packages.

Most recently, SHB launched a credit program with a volume of 10,000 billion VND for business customers, reducing interest rates to just 5.8%/year, and a 1,000 billion VND credit package for businesses seeking loans to purchase vehicles with a favorable interest rate of only 6.5%/year... along with various policies aimed at lowering lending rates for individual customers. SHB representatives highlighted that these initiatives are expected to enable customers to continue accessing affordable capital, with simplified procedures, thereby boosting production and business activities, and enhancing quality of life amid the current economic challenges. Furthermore, to facilitate convenient and competitive access to capital for customers, banks are also adhering to directives concerning the public disclosure of average lending rates and the spread between deposit and lending rates.

For instance, BIDV disclosed an average lending rate of 6.49%/year, with an interest rate spread of 3.12%/year. At Nam A Bank, these figures are 7.9%/year and 2.59%/year, respectively; TPBank reported 7.76%/year and 3.75%/year… with several banks making their base lending rates public.

Overcoming the banks’ "fear" in lending

Nevertheless, alongside strict adherence to policies and directives from regulatory bodies, banks also voice a desire for support and partnership from the macroeconomic environment.

For instance, when addressing mechanisms for securing assets lacking in flexibility or lending to loss-making companies, the chairman of Agribank highlighted a significant concern that commercial banks "fear" due to the absence of legal mechanism assurances. This leads to a mentality of "preferring lending with deficiencies over precise lending without full debt recovery." As per the nature of banking operations, the sector's challenges tend to lag behind the difficulties faced by borrowing clients. This is evident in the rising bad debt figures across banks.

Indeed, the bad debt ratio has escalated from 2.03% at the end of 2022 to 4.55% by the end of 2023. Given the current "health" of businesses and the economy, experts and bank representatives are concerned that if Circular 02/2023/TT-NHNN regarding debt structuring and maintenance of the original debt group does not extend its validity, the overall sector's bad debt ratio may surge even further. An increase in bad debts necessitates greater provision for risks, subsequently diminishing the sector's collective profits.

Thus, to support the banking sector in correctly steering credit flows and adopting a bolder approach to lending, banks are urging the Government to continue directing ministries and sectors to strive for the perfection of the institutional framework relating to credit institutions, real estate, housing, land...; and to refine policies aimed at improving the business environment, fostering the development of markets, including those for exports, imports, consumption, and finance...

Mr. Phan Duc Tu further advocated for an increase in public investment disbursement and the implementation of enterprise support policies; businesses themselves must also take the initiative to innovate in management and enhance the transparency of their financial accounting systems, thereby strengthening the trust between borrowers and lenders.