Customers has banking transactions conducted at a Vietcombank's branch in Ha Noi. Credit growth rates for commercial banks would be allocated this year, based on the banks' health and business performance. — VNA/VNS Photo Tran Viet

HA NOI (Biz Hub) — The State Bank of Viet Nam (SBV) will continue to allocate credit growth rates for commercial banks this year, based on the banks' health and business performance.

The move is aimed at controlling credit quality and restricting the generation of new non-performing loans (NPLs).

SBV Deputy Governor Nguyen Thi Hong announced the policy late last week, saying that the quota allocation for this year will be announced soon.

The allocation is aimed at not only ensuring that credit growth serves the economy, but also to control credit quality and restrict new NPLs arising in the future, Hong said.

SBV will divide commercial banks into four groups, depending upon their performance in the previous years to allocate the credit growth quota. The division will be: Group 1 (healthy banks), Group 2 (average banks), Group 3 (below-average banks) and Group 4 (weak banks). Group 4 might not be allocated credit growth rates.

Hong pointed out that to boost lending safely, the central bank's Credit Information Centre is also building a system to monitor the credit history of borrowers so that commercial banks can base their actions on the information, and thereby step up lending to good firms, while ramping up scrutiny of the ailing firms.

The central bank will also streamline a model for risk governance, inspection and supervision, especially in a number of industries and sectors, to ensure that banking performance remains under control, Hong stated.

SBV Governor Nguyen Van Binh said the central bank this year is targeting a credit growth of 15 per cent to limit lending and forecast that credit demand this year will be higher than last year. The central bank in 2014 targeted credit growth of 12 to 14 per cent to boost lending as last year's credit demand was too low.

Lending this year should be restrained at only 15 per cent to ensure the safety of the banking system, Binh said, adding that commercial banks in 2015 must pay due attention to credit quality, rather than credit growth as in 2014.

Some banks have also announced credit targets for this year. However, they might be adjusted by the middle of this year according to the central bank's credit quota allocation, as well as market demand. Both Vietcombank and BIDV targets credit growth of 16 per cent this year, while the figures for Vietinbank, Military Bank are 13 to 15 per cent, and 15 to 17 per cent.

The central bank had decided to apply the credit quota allocation policy in 2012 when many banks accelerated their lending by up to 50 per cent, causing a sharp rise in NPLs.

To date, some experts have recommended that the central bank withdraw the policy, saying that it is not necessary as the monetary market is stable. However, industry insiders have remained guarded about their view on the withdrawal.

Head of the Business Development Institute Dr Le Xuan Nghia told Thoi bao ngan hang (Banking Times) newspaper that the monetary market has only recently gained normalcy after many years of volatility. The central bank should therefore consider lifting the policy as the banking industry has good liquidity, while the Government is applying strict measures for handling NPLs and cross-ownership at banks.

The Deputy Director of the Central Institute for Economic Management Vo Tri Thanh also suggested the removal, saying banks are currently being cautious about lending themselves, as they are well aware of the consequences, including generating a large number of NPLs that they will be burdened due to rapid credit growth.

Besides, Thanh said, the central bank should not continuously use administrative measures to intervene in the monetary market, but allow it to operate under the market mechanism.

However, industry insiders recommended that the central bank scrutinise the withdrawal.

Deputy Director of HD Bank, Le Thanh Trung, said that in theory, the central bank should reduce its administrative intervention and allow the monetary market to operate under a market mechanism. However, in the current context, a withdrawal of the policy too early might not be good, and might even lead to negative consequences.

Though the economy has become better, it will take more time to see whether the economy is really healthy and is able to run smoothly, Trung said, adding that therefore, the central bank's role in leading the market and guiding the policy is very important.

Trung added that the time for policy withdrawal will depend much on the progress of the economy, suggesting that there should be no adjustment made at least during the first half of 2015.

Echoing Trung, deputy director of Orient Commercial Bank Nguyen Dinh Tung, also said the improvement of the banking industry and the entire economy as well, are not really sustainable so being cautious is necessary.

Tung said the central bank is required to control credit growth for the past years so that it does not withdraw the policy, unless it feels really secure about the stability of the entire banking system. — VNS