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Banking & Finance

NFSC: 8M credit growth at 11.5%

Released at: 14:02, 07/09/2017

NFSC: 8M credit growth at 11.5%

Illustrative image (Source: cafef.vn)

Credit growth outpaces growth of 9.1% in capital mobilization, according to National Financial Supervisory Commission report.

by Quang Huy

Total outstanding loans in Vietnam grew 11.5 per cent in the first eight months of this year, faster than the 10.2 per cent recorded in the same period last year, the National Financial Supervisory Commission (NFSC) announced in a report.

Of total credit, VND-denominated loans accounted for 91.5 per cent while loans in foreign currencies made up 8.5 per cent. Lending in foreign currencies grew 11.5 per cent in the eight-month period, much faster than the 1.7 per cent growth in the same period last year, with lending in VND growing 11 per cent.

Some 31.2 per cent of total credit was funneled into manufacturing and construction while 37.4 per cent went to services.

According to the report, growth in capital mobilization was much slower than for credit, at 9.1 per cent between January and August. Deposits from clients went up 8.7 per cent since the end of 2016.

Notably, deposits from the State Treasury of Vietnam rose 68 per cent to around VND160 trillion ($7 billion) as at the end of August, it added.

The NFSC pointed out that system liquidity was profuse, evidenced by interbank interest rates remaining low and edging up 0.2-0.3 percentage points from the end of July.

In addition, the State Bank of Vietnam (SBV) net withdrew VND4.5 trillion ($198 million) between August 1 and 22, leading to a net withdrawal of VND32.63 trillion ($1.43 trillion) since the start of the year.

At a monthly cabinet meeting on August 29, Prime Minister Nguyen Xuan Phuc asked the central bank to boost lending growth to at least 21 per cent, or three percentage points higher than the initial 18 per cent target adopted by the National Assembly, and to reduce loan rates by 0.5 percentage points.

According to a government report, credit growth was 10.06 per cent as at August 21, compared to 9.01 per cent in the same period last year.

A number of economists have warned that 21 per cent credit growth is high for the country’s nominal GDP growth and the task of monitoring needs to be strengthened to ensure loans are funneled into production and business and away from speculative sectors.

Mr. Nguyen Duc Khanh, Director of Investment Strategy at the Ho Chi Minh City Securities Corp. (HSC) brokerage firm, said that such an upwardly revised credit growth target risks fueling inflation. Agreeing, a 15 per cent growth rate for lending would already be considered high for an economy that grows 6.5 per cent annually like Vietnam, according to Mr. Vu Thanh Tu Anh, Research Director at the Fulbright Economic Teaching Program.

Faster credit growth in Vietnam is likely to undermine macroeconomic stability, particularly amid already rapid credit growth. The focus on GDP growth via credit growth is credit negative for the sovereign and its banks, Moody’s Investor Service wrote in a recent note. Policymakers’ focus on achieving GDP targets risks compromising banks’ asset quality and, hence, broader macroeconomic stability, it added.

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