Deputy Governor gives reasons for negative credit growth in the first two months of the year

Lack of connection between customers and banks

Reporting at the Conference on implementing monetary policy management tasks in 2024 on the morning of March 14 chaired by the Prime Minister, Deputy Governor of the State Bank of Vietnam Dao Minh Tu said that due to seasonal factors of the Lunar New Year and the economy's low capital absorption capacity, by February 29, 2024, economic credit decreased by 0.72% compared to the end of 2023. However, the rate of decrease in February slowed down (-0.05%) compared to January (-0.6%).

The State Bank of Vietnam said that the current decrease is in most economic sectors and fields. There are 2 fields that have grown in the first 2 months of the year, which are credit in the real estate sector, up 0.23% compared to the end of 2023, credit in the securities sector, up 2.56% compared to the end of 2023.

Regarding difficulties, obstacles and causes, the State Bank said: Firstly, the world economy is unpredictable, inflationary pressure and world interest rates are high, the USD and world gold prices are complicated; the difference in USD-VND interest rates, etc. are factors that negatively affect the stability of the domestic VND/USD exchange rate, especially when VND interest rates are expected to continue to decrease.

Finance - Banking - Deputy Governor gives reasons for negative credit growth in the first two months of the year — Deputy Governor of the State Bank of Vietnam Dao Minh Tu reported at the conference (Photo: VGP).

Second, there is difficulty in granting credit. Mr. Tu said that the negative credit growth in the first two months of the year was due to many reasons. Regarding objective reasons, according to seasonal factors, the demand for credit capital often increases at the end of the year and before Tet, leading to difficulty in rapidly increasing credit scale in the first two months of the year.

The demand and absorption capacity of the economy are low as many businesses are shrinking or ceasing operations due to inflationary pressure, rising material prices; lack of orders; many input factors, high production and business costs so there is no need to borrow capital; people increase provisions and reduce spending loans; real estate credit accounts for about 21% of total credit, high increase/decrease in real estate credit often causes the credit of the whole system to increase/decrease.

“Some customer groups have needs but do not meet the loan conditions; especially small and medium enterprises due to small capital scale, limited capacity, lack of feasible business plans, solutions to increase credit access through the Credit Guarantee Fund, Small and Medium Enterprise Development Fund have not been very effective,” said Mr. Tu.

The Deputy Governor also pointed out difficulties in implementing a number of credit programs and policies such as: for the 120,000 billion VND Program, legal regulations related to social housing projects (land funds, procedures, purchase and sale procedures, valuation, etc.) still have many problems; the number of projects to renovate and rebuild apartments is very small; some conditions for home buyers are no longer suitable.

Finance - Banking - Deputy Governor gives reasons for negative credit growth in the first two months of the year (Figure 2). — According to the Deputy Governor, the implementation of the collateral mechanism based on mortgaged assets, especially in the context of a sluggish real estate market, is still lacking in flexibility.

For consumer loan packages, workers' incomes have decreased in the context of high unemployment and job losses, so there is no source to repay debts, leading to a decrease in demand for consumer credit; workers and laborers have not yet grasped the information clearly while businesses and grassroots unions have not really focused on communicating and popularizing loan packages.

The ability of credit institutions to mobilize medium and long-term capital is still low compared to the medium and long-term capital needs of the economy.

Regarding subjective causes, the Deputy Governor of the State Bank of Vietnam said that some banks are still cautious in granting credit due to increasing bad debts. Some old debts with high interest rates are slowly being adjusted down to support businesses and individuals to borrow capital.

Some banks' lending procedures are still slow to improve, especially the loan approval time is still long, and valuation and decision on mortgage assets are still too cautious.

“The implementation of the collateral mechanism is still inflexible, mainly relying on mortgaged assets, especially in the context of a sluggish real estate market. There is a lack of connection, interaction, sharing, and cooperation between customers and banks in directly discussing and finding solutions to overcome capital difficulties,” he stated.

In addition, capital mobilization through stocks, bonds, and FDI capital has increased slowly, difficulties in the bond and real estate markets have not been fundamentally and thoroughly resolved... causing capital sources for growth to continue to focus on bank credit, the credit/GDP ratio to increase (about 133% at the end of 2023, up from about 125% at the end of 2022), posing potential risks to the safety of the financial and monetary systems.

Strengthen direct dialogue with businesses

In the coming time, the Deputy Governor said, the State Bank will study and amend legal documents to increase access to bank credit capital, such as extending the implementation period of Circular 02 until the end of 2024; completing the Circular amending and supplementing Circular 16 in accordance with the Law on Credit Institutions 2024 and market practices; synchronously amending Circulars regulating credit granting activities of credit institutions to be consistent with the provisions of the Law on Credit Institutions 2024.

Finance - Banking - Deputy Governor gives reasons for negative credit growth in the first two months of the year (Figure 3). — Conference on implementing monetary policy management tasks in 2024 on the morning of March 14 (Photo: VGP).

Direct credit institutions to increase credit growth safely, effectively, correctly, and on target, promptly meeting the capital needs of the economy, directing credit to production and business sectors, priority sectors, and growth drivers. Review and simplify procedures, loan applications, and collateral, creating favorable conditions for businesses and people to access bank credit capital.

In addition, conferences connecting banks and businesses are regularly held. For some important sectors and fields of the economy such as real estate, petroleum, projects, and key traffic works, the legal corridor continues to be improved, creating favorable conditions for customers to access capital.

Coordinate with local agencies, associations, and corporations with large projects to directly dialogue to resolve difficulties and obstacles, and direct credit institutions to proactively access information, consider, and decide on lending based on the assessment of project effectiveness, customer repayment ability, and ability to balance capital sources according to regulations.

The State Bank also proposed and recommended to relevant ministries, branches and localities to implement necessary solutions to enhance credit access for businesses in the coming time.

“It is recommended that businesses actively implement measures to restructure operations, improve management and administration capacity, develop feasible production and business plans and projects, be transparent about their financial situation, and coordinate with banks to form a symbiotic relationship... so that credit institutions have a basis for appraisal and lending decisions,” the Deputy Governor stated .

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