Mr. Nguyen Tien Dong, Director of the Credit Department at the State Bank of Vietnam, spoke with VET about credit growth in the country over the first eight months of 2015.
How would you assess credit growth in Vietnam’s banking sector over the first eight months of the year?
As at August 31 credit growth in the banking sector stood at 10.23 per cent compared to the end of 2014.
Credit to agriculture and rural development provided by financial institutions (excluding the Vietnam Bank for Social Policy and the Vietnam Development Bank) as at the end of August was estimated at VND811.63 trillion ($36.1 billion), an increase of 9 per cent since December 31, 2014.
Meanwhile, credit to the export sector was VND184.59 trillion ($8.21 billion), an increase of 4.99 per cent, to the high-tech equipment sector VND25.614 trillion ($1.13 billion), up 29.12 per cent, to support industries VND110.62 trillion ($4.92 billion), an increase of 3.2 per cent, and to small and medium-sized enterprises (SMEs) VND976.72 ($43.45 billion), up 4.07 per cent against the end of 2014.
The credit structure is therefore taking the shape directed by the government.
The reason for credit growth being significantly higher since 2011 is the recovery of the economy, which creates greater demand for investment and, hence, the need for credit.
The Governor of the State Bank of Vietnam (SBV) has also directed credit flows from financial institution in the right direction and encouraged them to implement programs created by the SBV to support and handle problems in credit flows into the economy.
Since the beginning of this year the credit has grown 1.1-1.2 per cent each month, and I am certain that the 16-17 per cent target for this year will be achieved.
What about the loan-to-deposit ratio (LDR) in the sector?
The LDR is around 80 per cent, which meets the requirements of the SBV.
It must be noted that in previous years we were concerned about low credit growth but today there is some concern over high credit growth.
Prior to 2011, loans were significantly higher than mobilized capital in the primary market, putting the LDR at over 100 per cent, and many banks had to borrow on the interbank market to have sufficient capital for lending, which increases risks to liquidity.
Therefore, we must make careful calculations to balance credit growth within the entire framework of capital demand, interest rates, and inflation, to direct credit flows into the right sectors and meet safety indicators, of which the LDR is one.
How does credit growth in VND compare to growth in foreign currency loans?
Credit growth in foreign currencies used to higher than for VND loans but this has changed. VND credit growth in the first eight months was at 10.1 per cent while foreign currency loan growth was only around 8 per cent.
This is down to the difference in the exchange rate between the VND and the USD. When it was high previously, borrowed funds in foreign currencies would be transferred to other countries to earn a profit. Recently, though, such activities seem to have declined, due to movements in the exchange rate encouraging people to borrow in VND.
An economic expert recently said that the crude oil price falling to $30 a barrel would result in deflation in Vietnam, so loosened monetary policy was needed to encourage economic growth. What do you think of this claim?
Predictions about the crude oil price falling to $30 per barrel are made outside of Vietnam. I think that such a price will only occur at certain times, depending on the economic situation, the political environment, and competition.
A price of $30 a barrel is only equal to the production cost, and no country or petroleum organization can produce and sell indefinitely at this price.
Regarding monetary policy, I think that a continually low CPI is not suitable for an emerging country like Vietnam. Normally a bit of inflation is needed, and the loosening of monetary markets to a certain level would secure economic growth targets.
The SBV, however, has put top priority on managing inflation and stabilizing the VND, to spur confidence among the people and investors. The loosening of monetary markets would have to be done carefully.
Moreover, in the long term, in order to support development we must stop relying too much on banks. We have to work to develop the capital market to make it the main channel for acquiring capital. Banks should not hold 80 per cent of total investment, as is now the case.