Tien Phong Commercial Joint Stock Bank (TPBank) has been allotted a 15 per cent credit growth quota in 2018, but it used up 14.5 per cent right in the first half of the year.

Some other banks have limits ranging from 9 per cent to 12 per cent.

The State Bank of Viet Nam (SBV) sets credit growth limits for each bank depending on its health at the beginning of the year to regulate overall credit growth and to support government targets.

This year the SBV set a target of 17 per cent for the industry, lower than last year’s figure of 18.2 per cent.

Many banks are likely to seek an increase in their credit limits like they did in previous years when they used up their assigned quota halfway through the year.

In the last few years the SBV has increased credit limits for certain banks based on their credit quality and economic growth.

Many expect more of the same this year.

A banking expert said: “The banks that have already used up their credit quotas will not know what they should do in the remaining months of the year if the central bank does not increase their credit quotas.”

A question that has been asked multiple times in recent years is “Is it time for the central bank to remove credit limits for banks?”

The central bank began the quota system in 2012 when many banks increased their lending by up to 50 per cent, causing a sharp rise in non-performing loans.

According to the SBV, the allocation is aimed at both ensuring there is adequate credit to serve the economy’s needs and controlling the quality of credit, thus precluding bad debts.

Analysts said the economy heavily relied on credit from the banking sector in the absence of other sources, and so the central bank needed to closely monitor lending to minimise bad debts.

Unusually this year credit growth decelerated in the first half while GDP exceeded expectations.

The economy grew by 7.08 percent in the first six months of 2018, the highest in eight years, primarily driven by growth in services and industry-construction.

Meanwhile, according to the General Statistics Office, total credit in the Vietnamese banking system grew 6.35 per cent in the first six months of this year, slower than the 7.54 per cent in the same period of 2017.

Analysts attributed the situation to, among other things, the strong inflow of FDI last year and in the first half of the year.

The country attracted more than US$20 billion of foreign investment in the first six months, according to the Ministry of Planning and Investment.

The analysts said the decreasing reliance on bank loans was conducive to achieving the Government’s goal that the long-term capital resources needed for the economy should be mobilised from the capital market, particularly the stock market, while the monetary market and banking sector would be responsible for providing short-term funding.

They said the central bank needed not to resort to controlling the quantity of credit, but can instead use an instrument like capital adequacy ratio (CAR).

CAR is the percentage of a bank’s capital to its risk-weighted assets, and is based on global norms under the Basel Accords.

Strictly enforcing CAR would force banks to be prudent about their lending, the analysts said.

Banks are not as ready to lend now as in the past because of Circular No.19/2017/TT-NHNN, which took effect last February and requires all credit organisations to reduce their tier II capital starting this year.

Tier II refers to supplementary capital and is considered less reliable than tier I, which comprises shareholders’equity, disclosed reserves and retained earnings.

Under Basel III, the minimum tier 1 capital ratio is 10.5 per cent while the overall minimum CAR is 12.5 per cent.

The CAR of many banks has been edging down in the last few years .

Cryptocurrency scams continue

Though trading and mining cryptocurrencies are not legally permitted, scams have proliferated in recent years with criminals seeking to take advantage of the cryptocurrency frenzy to lure gullible investors by promising absurdly high rates of return.

Experts said the public should be educated about the fact that cryptocurrencies and related activities are illegal in Viet Nam and so those investing money in them would not be protected if they are defrauded.

In April dozens of disgruntled investors gathered in front of Modern Tech Company’s headquarters in Ho Chi Minh City’s District 1 carrying placards denouncing the company’s alleged fraudulent activities and demanding refunds.

The owner of the building where the start-up had been headquartered told reporters it had moved out of its office a month earlier.

Modern Tech had promised investors up to 40 per cent in monthly profits before it was found to have duped 32,000 people out of an estimated VND15 trillion ($660 million) this way through two fake cryptocurrencies and their initial coin offerings (ICOs).

Investors first began to grow suspicious when the company stopped paying commissions in dong and switched to digital coins. While they could see the value of their investment rise on a daily basis, they were unable to actually lay their hands on any cash.

They took to social media to lament, some claiming they had lost a fortune investing in the alleged Ponzi scheme.

In May the Ministry of Public Security began investigating a massive cryptocurrency con perpetrated by another HCM City-based company, VNCOINS, which too had offered investors huge returns.

According to the police, between August and November 2016 some 6,000 people had invested VND200 billion (US$8.5 million) in it.

Another scam in HCM City, by Skymining, is also being investigated after the cryptocurrency mining firm’s owners fled after collecting billions of dong from hundreds of investors across the country.

Just like in all the other schemes, investors were promised returns of 300 per cent in 12-15 months.

The CEO of Skymining has reportedly disappeared with investor and company funds worth $35 million.

According to the Customs General Department, the number of virtual currency mining rigs imported into Viet Nam has been rising rapidly and there were 15,000 of them as of last April, mainly in Ha Noi and HCM City.

The Ministry of Finance has proposed temporarily banning imports of virtual currency mining machines before the cases of cryptocurrency fraud become too numerous.

The State Bank of Viet Nam (SBV) has warned the public that Bitcoin is banned in the country and violations are subject to fines and even criminal charges.

In a recent release it underlined the fact that Bitcoin and other cryptocurrencies are not legal tender in Viet Nam.

The issuance, supply and use of Bitcoin and other virtual money are prohibited, it said.

The legitimate methods of cashless payment in the country are cheques, payment orders, collection orders, bank cards, and others specified in writing by SBV.

Those breaching this regulation will be subject to a fine of VND150-200 million (US$6,575-10,959).

Starting this year those issuing, supplying and using illegal methods of payment in Viet Nam could also be criminally under the Penal Code. — VNS