Credit Growth Challenges in Vietnam

In Vietnam's dynamic economic landscape, the pulse of growth is often measured through the lens of credit. This article embarks on a compelling exploration of the intricate world of credit growth in Vietnam. We begin by examining the recent fluctuations in credit and the noteworthy concerns voiced by the Director of the State Bank's Monetary Policy Department. As we delve deeper, we'll uncover the multifaceted factors that influence credit growth, with a keen focus on the strategies deployed by banks and the resounding impact of real estate in this complex financial terrain.

Factors Influencing Credit Growth in Vietnam

Bank-Specific Credit Growth

The landscape of credit growth in Vietnam is a patchwork quilt of responses from various financial institutions. In response to the ever-shifting dynamics of the Vietnamese economy, individual banks have navigated the terrain with varying degrees of success. Some have embraced the challenge head-on, while others have found themselves navigating uncharted waters. These banks' unique approaches and strategies in the face of credit growth challenges are shaping the nation's financial landscape.

One noteworthy case is VPBank and LPBank, which have taken a proactive stance in the quest for expansion. Their applications to the State Bank for additional credit room expansion illustrate the proactive approach some institutions are adopting to meet the growing capital needs of the economy. This strategic move not only underscores the banks' ambition but also highlights the critical role they play in fueling economic growth.

Financial reports for the third quarter of 2023 paint a diverse picture, reflecting the varied credit growth trajectories across different banks. MSB, MB, Techcombank, TPBank, and SHB have all recorded noteworthy increases in their credit portfolios. These figures demonstrate the unique strategies that each bank employs to harness the potential for credit growth in Vietnam.

Excess Liquidity and Credit Growth Potential

The degree of excess liquidity within the financial system also has an impact on the credit landscape. Insights from the Monetary Policy Department of the State Bank reveal that Vietnam's credit institution system currently grapples with an issue of excess liquidity. With around 8% of untapped credit growth potential remaining, which equates to a substantial VND 950,000 billion in extra credit for the economy, deliberations have arisen regarding the yet unrealized possibilities for expanding credit. Evaluating the potential for credit growth involves a delicate balancing act. The excess liquidity presents an opportunity to allocate credit where it's needed most, yet it also raises questions about the economic impact of this allocation. The availability of credit is poised to be a catalyst for economic progress, spurring investments, fostering business expansion, and driving economic prosperity.

Real Estate Business Impact on Credit Growth

Private Joint Stock Commercial Banks' Strategy

Amidst Vietnam's ever-evolving financial landscape, private joint-stock commercial banks have emerged as key players in the quest for robust credit growth. These institutions have adopted high-powered strategies, setting the stage for a fascinating exploration of their role in driving credit expansion.

Investment Newspaper's survey results indicate a compelling correlation between high credit growth and real estate business credit. Private joint-stock commercial banks, in particular, have shown a remarkable propensity to link their credit growth to the surge in real estate business loans. This connection underscores the significance of real estate as a driving force behind their credit portfolios.

Examples abound, with banks such as Techcombank, VPBank, MB, SHB, and others demonstrating substantial growth in their real estate business credit activities. Techcombank, for instance, witnessed a remarkable 47% increase in its real estate business loan balance, accounting for a significant 34.63% of the bank's total credit balance. VPBank followed suit with a noteworthy 52.7% surge in real estate business loans, making up 17.5% of its credit portfolio. MB, too, displayed a robust growth of over 61% in real estate business loans, elevating the proportion of such loans in its portfolio. This intriguing trend underscores the key role of real estate in the credit growth strategies of private joint-stock commercial banks.

Reasons Behind Real Estate Business Credit Surge

The surge in real estate business loans reflects a multifaceted interplay of factors. A significant component is the proportion of real estate business loans within banks' overall credit balance. This proportion has experienced notable growth, contributing to the surge in credit linked to real estate. Reports on real estate businesses' debt ratios provide additional insights into this phenomenon, shedding light on the financial landscape.

Corporate bond market congestion adds another layer to the narrative. In the third quarter of 2023, real estate businesses found themselves navigating through a congested corporate bond market. Consequently, they turned to long-term debt sources, with the bank loan channel emerging as the primary choice, accounting for a substantial 40%. This dynamic signifies the interdependence between real estate businesses and the banking sector in the quest for credit.

Government Response and Future Outlook

State Bank's Actions

The State Bank of Vietnam, fully aware of the evolving credit landscape, has taken decisive steps to shape the future of credit in the country.

• Reviewing Circular 03 and Circular 06: In response to changing conditions, the State Bank is promptly reassessing Circular 03 and Circular 06, regulations of great significance concerning credit. The goal is to align these frameworks with current market dynamics, fostering an environment conducive to economic growth.
• Enhancing Accessibility to Credit Capital: Acknowledging credit as a driver of economic activity, the State Bank is issuing amended and supplementary documents to simplify access to credit capital. This initiative aims to empower businesses and individuals, promoting economic vitality.
• Recommendations for Credit Institutions: The State Bank offers guidance to credit institutions, emphasizing production-oriented strategies, cost reduction, and streamlined loan procedures. These measures aim to align financial institutions with broader economic objectives, supporting sustainable growth.

Economic Factors Affecting Credit Growth

Understanding the various factors influencing credit growth is crucial for charting the path forward. Several key economic factors have shaped recent credit trends.

• Demand-Side Factors: Recent subdued credit growth results from demand-side factors, including the economy's capacity to absorb credit. Balancing credit supply and demand remains essential for a resilient financial landscape.
• Balancing Credit Supply and Demand: The State Bank is diligently maintaining equilibrium in credit supply and demand, ensuring system safety. This balance is essential for optimizing credit utilization while upholding financial stability.
• Credit's Role in Future Economic Growth: Looking ahead, credit will continue to play a central role in fueling economic growth, encouraging investments, facilitating business expansion, and propelling Vietnam towards prosperity.

Final Thoughts

In summary, comprehending the intricate dynamics of credit growth in Vietnam sheds light on a multifaceted landscape shaped by economic demand, regulatory interventions, and the strategies of financial institutions. A crucial element for fostering sustainable economic growth lies in striking the right balance between credit supply and demand.At Viettonkin, we grasp the key role that credit plays in shaping economic landscapes. As you navigate the nuances of credit management, our seasoned team of experts stands poised to assist. Explore innovative solutions with Viettonkin and unlock the full potential of your financial endeavors, backed by our expertise.