|Banks must play a key role in providing liquidity to the market. Photo: ST|
Prioritize credit for 3 growth drivers
In recent meetings with localities, Prime Minister Pham Minh Chinh has repeatedly mentioned the instructions and solutions for credit management. Most recently, working in Bac Lieu province on November 4, 2022, the Prime Minister said that he had directed the State Bank of Vietnam (SBV) and credit institutions to review and classify businesses and organizations to operate effectively, safely and sustainably; research and immediately implement appropriate and effective credit limit increases to control inflation, promote growth, and create jobs; focusing on three growth drivers like consumption, investment, export, and business support during a difficult period.
The story of applying for a credit room extension has always been a concern from mid-2022 until now, especially the pressure from the fluctuation of the corporate bond market. Accordingly, a series of businesses complained about the lack of capital for production and business, especially since the peak of the production season at the end of the year and the beginning of 2023 came. Therefore, in early December, the Ho Chi Minh City Real Estate Association (HoREA) sent a document to the Prime Minister and the State Bank of Vietnam to ask for an additional 1% increase in the credit ceiling at the current critical time to add more credit sources for production and business during the peak period at the end of the year.
However, profoundly studying the problem, the reason businesses are challenging to access capital is because banks lack room to lend and because banks are running out of capital, and liquidity in the market is “congested”. For example, statistics from banks’ financial statements for the third quarter of 2022 showed that the average customer loan/customer deposit ratio exceeded 100%, while at the end of 2021, it was only 97.9%.
VNDirect Securities Company said that liquidity stress in the banking system has appeared since the third quarter of 2022. To curb inflationary pressure, the SBV has tightened the money supply since the beginning of 2022 and, simultaneously, has limited credit growth assigned to commercial banks. In addition, several negative events in the bond market also significantly affected the operations of some banks, putting pressure on system liquidity as commercial banks turned more defensive.
According to the SBV, the 10-month credit increased by 11.5%, but capital mobilization only increased by 4.8%. Dr Nguyen Quoc Hung, General Secretary of the Vietnam Banks Association, said that loan balances and total deposits are almost equal; banks are facing many difficulties in terms of capital adequacy ratio. So, even if the State Bank opens more credit room, commercial banks will not have enough capital to lend more. Therefore, to ensure sufficient capital to meet the needs of businesses, banks are forced to sharply increase input deposit interest rates. This may affect the lowering of lending interest rates and supporting businesses under the direction of the Government and the State Bank. Besides liquidity difficulties, according to a representative of the Vietnam Banks Association, the banking industry is facing high pressure of bad debt.
For peace of mind to pump capital into the market
The problems mentioned above show that, up to the present, whether an opening room or not, financing for the economy is not simple. In addition, experts pointed out that the credit room management mechanism has revealed many shortcomings, and the operator needs to learn from experience.
Mr Quan Trong Thanh, Director of Analysis Maybank Invest Banking (MSVN), said that the bond market’s volatility has caused the bond market’s liquidity and the total economy to be tightened. In an economy, liquidity comes from the bond and stock markets, but these two markets belong to Vietnam, especially since the stock market has not yet been an important and continuous market for businesses. Bonds are a very important capital conduit for the markets, but we have recently developed them. Therefore, banks are mainly providing capital in the current period, especially short-term liquidity.
Therefore, this expert said it is necessary to direct the expansion of the room or the State Bank to direct banks to use up the remaining credit room. But how money really runs into the economy, there must be specific moves, calculated in the operating indicators so that banks can safely pump capital into the market. The State Bank can continue to keep the credit growth target, at least 14%, if the economy is better, it can raise the credit room to 14-16%, which is necessary when the bond market has not recovered.
Sharing the same opinion, Mr. Nguyen Duy Anh, Head of Portfolio Management Department, Vietcombank Fund Management Company (VCBS), said that it is currently a rather sensitive period, market liquidity is difficult not only for businesses but also for investors. The interbank liquidity is also quite strained. So the key issue is market confidence. “If there is a shortage of money in the banking system, it is not a shortage to the point of not providing enough capital for businesses, but trust between banks is no longer there. Any bank that has money will want to keep it as safe as possible, so the purpose of capital safety is above the profit purpose,” said Mr Nguyen Duy Anh.
Meanwhile, Dr Tran Minh Tuan said that the State Bank should not restrict the credit room for the whole industry but should only regulate the room in some highly speculative industry groups, especially securities investment loans to buy land plots. … With a stronger point of view, Dr Pham The Anh, Chief Economist of the Vietnam Center for Economic and Strategic Studies (VESS), proposed to soon end the use of credit ceilings as well as other direct administrative interventions in the capital/money market because according to this expert, the highest goal of inflation control is to control the money supply, not credit control. Meanwhile, the downside of the credit growth ceiling is that the banking industry becomes less competitive.
Currently, in addition to controlling the money supply directly by setting a credit room target, the SBV is controlling the money supply by other factors such as operating interest rate, capital adequacy ratio (CAR), lending rate, etc. loans to deposits, the ratio of short-term deposits for medium and long-term loans… Experts say that if these tools are used well, the SBV can remove the credit room altogether. In addition, to avoid sudden credit growth like this year, the State Bank should completely assign credit targets to banks at the beginning of the year so that banks and businesses can take the initiative in business plans.
The above comments show that enterprises that want to mobilize medium and long-term capital must go to the capital market. But in the current context, the bond market cannot recover normally; banks must play a key role in providing liquidity to the market. Therefore, in addition to the flexible management of credit policy from the State Bank, it is necessary to closely coordinate with the fiscal policy, in which it is necessary to accelerate the disbursement of public investment to increase capital flows to the economy; at the same time, enhance trade promotion, export promotion, and investment attraction to help improve supply and demand for foreign currencies as well as reduce liquidity pressure on exchange rate.