Banks on track for 12% credit growth target

Monday, Dec 22, 2014 08:00

The State Bank of Viet Nam announced recently that banking credit grew by 10.22 per cent in the first 11 months. — Photo tindung

The State Bank of Viet Nam announced recently that banking credit grew by 10.22 per cent in the first 11 months.

This means that the full year growth target of 12 per cent is certain to be achieved.

Banking industry insiders attribute a rapid increase in credit growth in the last few months to several reasons including the market's increasing seasonal demand for funds and the impacts of the Government's policies to revive the economy.

The early signs of an economic recovery have also made a significant contribution to the growth.

Normally businesses see production activities peak in the fourth quarter to meet the spike in demand during Tet and so their need for funds too goes up.

Of the Government's recent policies, Circular 36 that allows banks to use up to 60 per cent of their short-term deposits for medium- and short-term loans and enlarges the categories of borrowers permitted to borrow medium- and long-term loans has also helped accelerate lending.

Another policy to stimulate credit is one from the central bank to lower both the deposit and loan interest rate caps.

As a result of all these, State-owned banks have achieved credit growth of around 10 per cent on average while for joint stock banks it is between 15 and 30 per cent.

Significantly, the bank loans have been put to good use, flowing as they have into priority sectors listed by the Government.

This is clear from the fact that loans outstanding to small and medium-sized enterprises have increased by 13.8 per cent and to the technology sector by 14.8 per cent.

Loans to the agricultural and rural development sector have risen by 12.8 per cent.

But according to some bank chiefs, many lenders achieved high credit growth mainly through retail lending.

At Sacombank, for instance, which reported credit growth of 15 per cent in the first 11 months, retail lending accounts for 50 per cent of outstanding loans.

VPBank's credit growth in the first nine months was 34.8 per cent, thanks to consumer loans through its financial company FE Credit.

Interestingly, some lenders have reported negative credit growth.

As of the end of September PVcombank had credit growth of minus 6.84 per cent, while for ABBank it was minus 1.4 per cent and for DongABank it was minus 0.54 per cent.

Though this means the bottom line will take a hit, banks remain prudent and very careful about lending to minimise risks.

Controlling bad debts is now more important and difficult than achieving credit growth, they said.

Delay in foreign ownership cap hike

Earlier this year the Government had planned to amend the laws to increase the foreign ownership cap in non-banking sectors to 60 per cent from the existing 49 per cent.

The idea was welcomed by investors, who described it as a positive step in attracting more funds into Viet Nam's two stock markets as well as companies.

Speculation about the imminent increase boosted the Ho Chi Minh City bourse since the beginning of this year, making it the best performer in Southeast Asia and fourth best in all of Asia.

According to Bloomberg News, foreign investors have increased their holdings in the country by US$131.9 million this year, the ninth straight year of net inflows. The daily trading volume has more than doubled to $98 million this year, it said.

The VN-Index rose by 12 per cent in 2014.

However, Vu Bang, chairman of the State Securities Commission, revealed at the Annual Viet Nam Business Forum that the proposal to increase the percentage of voting shares foreigners can hold in listed companies would be delayed until late 2015.

The delay has caused great disappointment to both domestic and foreign investors.

They want regulations to be loosened soon pointing to the modest foreign cash flows into the Vietnamese stock market.

This year the bourses have attracted only $150 million in foreign portfolio investment compared to foreign direct investment of $10 billion.

Viet Nam's market capitalisation – the total market value of all the listed stocks — remains very small compared to other ASEAN member countries. It is equivalent to just a fifth of the Philippines's and a 10th of Malaysia's.

Analysts have said the market would need US$5-10 billion to absorb their stocks when state-owned enterprises are equitised in the near future.

Policy makers think the delay is unavoidable if the legal framework has to be perfected so that the bill can be passed and implemented smoothly.

Bang said the State Securities Commission would work with related agencies to resolve the contradictions in legal regulations to implement the cap hike.

He believed the Vietnamese market would continue to recover next year thanks to the stability of the economy.

The market has been on a recent downward spiral. Early last week (December 15) a strong sell-off by foreigners sent it into the red, with the VN-Index shedding six points, or 1.08 per cent, to close at 547.93.

A day later it lost a massive 12.79 points to end at 535.14.

The weakness in the global oil sector is among the reasons attributed to the fall.

Trade surplus

A solid export performance in the year to date has prompted the Ministry of Industry and Trade to forecast a trade surplus of US$1.5 billion for this year.

In its latest forecast, it has said the full-year export target of $150 billion is obtainable based on the average monthly exports of $11.5 billion in the past 11 months.

The total exports in the January-November period of $137 billion was 13.7 per cent or $16.5 billion higher year-on-year. Domestic firms accounted for $44.8 billion, up 13 per cent, and foreign-invested firms for $85.4 billion (excluding crude oil), an increase of 15.1 per cent.

More good news lies ahead for the export sector: Negotiations on the free trade agreement with the European Union is due to be concluded soon while the Trans-Pacific Partnership, once in place, is expected to. boost the competitiveness of the country's export manufacturing sector.

Meanwhile, imports in the 11-month period rose 12.6 per cent.

Significantly, though the Government's policy has been to limit imports of luxury goods by measures like increasing taxes and using technical barriers,

US$5.3 billion has been spent on importing luxury autos, cosmetics, smart phones, and jewellery.

According to the General Statistics Office, in the 11 months this year some 60,000 completely built units of autos were shipped to Viet Nam, up 89.1 per cent from last year, for $1.3 billion. They included Rolls-Royce, Bentley, and Infiniti.

Also as of November around 20 million smart phones worth $1 billion were imported, up 11.5 per cent. Analysts estimate import of luxury goods for the full year would rise to $5.7-5.8 billion, accounting for about 4-5 per cent of the total imports.— VNS

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