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Tuesday, June 18, 2024

Credit growth remains sluggish

The Saigon Times

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HCMC – Outstanding loans in Vietnam had surpassed VND12.3 quadrillion in the year to mid-June, a 3.36% increase compared to December 2022 and a 8.94% rise against the same period last year.

These figures were disclosed during a press conference held on June 21 by the State Bank of Vietnam (SBV), the country’s central bank.

Since the beginning of the year, the SBV has focused on monetary policy aimed at controlling inflation, ensuring macroeconomic stability, and accelerating growth.

Thus far, the central bank has made four key interest rate cuts, reducing refinancing rates by 1.5 percentage points and interbank rates for electronic payments and compensatory lending for capital shortfall by two percentage points.

The maximum deposit interest rate for tenors below six months has decreased by 0.5 to 1.25 percentage points, while the maximum interest rate for short-term loans for priority sectors has been lowered by 1.5 percentage points.

Commercial banks have been encouraged to cut expenses in order to further reduce lending rates and support manufacturers.

Deputy Governor Dao Minh Tu stated that average deposit rates at banks have dropped by 70 basis points compared to December 2022, while lending rates have decreased by 100 basis points to 5.8% and 8.9% per year, respectively.

However, despite the swift interest rate cuts, credit expansion has remained slow due to weak demand. Tu attributed this sluggish credit growth to a lack of robust demand rather than tight lending criteria.

“From a banker’s perspective, accelerating credit growth is necessary, but not at the expense of lowering credit standards, as doing so would increase the risk of instability in the banking system,” Tu said.

In February, the central bank set the credit growth limit at 11% for commercial banks, targeting a credit expansion rate of around 14-15% for the year.

However, credit has only grown by 3.36% year-to-date, indicating a weak absorptive capacity in the economy stemming from various internal and external factors.

With surplus liquidity in the system, the SBV’s leader emphasized that loans would be provided to cash-strapped businesses and sectors with good repayment capabilities.

The SBV has pledged to implement its monetary support policy for businesses, encourage banks to further reduce interest rates, and facilitate loan accessibility for individuals and businesses.

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