Credit growth must be controlled


Authorities need to closely control the rapid increase in Viet Nam’s credit-to-GDP gap so as not to cause high inflation as in the past, experts have warned.

Experts say the credit growth target should be lowered to 12-14 per cent this year. - VNA/VNS Photo

Authorities need to closely control the rapid increase in Viet Nam’s credit-to-GDP gap so as not to cause high inflation as in the past, experts have warned.

Reports from Saigon Securities Inc (SSI)’s retail research division showed high credit growth has pushed total outstanding loans of credit institutions to VND7 quadrillion (US$299.15 billion), equal to 130 per cent of the country’s GDP against the 100 per cent rate at the end of 2014.

With the rise, the credit-to-GDP gap has increased in the past few years, from negative growth in 2014 to 30 per cent in 2018 the report noted, adding that the rate is much higher than that of other countries including Thailand (6.1 per cent), Indonesia (6.8 per cent), China (12.7 per cent) and the Republic of Korea (-2.4 per cent).

“The rapid increase in the credit-to-GDP gap is a risk indicator that needs to be controlled so as not to cause inflation as it did in 2008 and 2010,” SSI analysts said.

The warning was made in the context that the CPI in the first nine months of 2018 increased 3.2 per cent compared to end of 2017, the highest increase in recent years.

According to the analysts, the policy of stabilising exchange rates and curbing domestic inflation needs to be prioritised as it is very difficult to control external factors, such as crude oil price or US dollar value. Credit growth should be tightened to reduce liquidity pressure, narrow the credit-to-GDP gap and keep inflation at a reasonable rate.

Banking expert Pham The Anh said that as Viet Nam has overcome the downturn and is recovering, the country should focus on sustained growth and avoid excessive reliance on credit as before.

According to Anh, the 6.7 per cent GDP growth target this year has almost been reached so, monetary policy needs to shift from growth support to inflation caution as inflationary pressure is the biggest risk for the economy in the rest of the year.

The central bank should limit the money supply to the economy and lower the 17 per cent annual credit growth target to 12-14 per cent this year, Anh recommended.

Previously, the International Monetary Fund also warned Viet Nam’s credit growth was too high, suggesting the country should lower the rate from the current 17 per cent to below 14 per cent to reinforce macroeconomic stability. — VNS

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