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Credit growth in 2009: Opportunities and risks
The two demand stimulus packages now under implementation have brought cheap capital to businesses and helped banks push up loans. However, Director of the HCM City branch of the State Bank of Vietnam Ho Huu Hanh has warned that risks always exist when banks are busy pushing up loans.
What do you think about the efficiency of the interest rate subsidy packages?
By April 25, the total outstanding loans under the interest rate subsidy programme had reached VND255tril. The banks in HCM City alone had disbursed VND50tril, while capital mobilistion and lending has grown by 7.6% over the beginning of the year.
With such a credit growth rate, I believe that the banking system will obtain the 25% credit growth rate by the end of the year.
The outstanding loans under the interest rate subsidy programme prove to be low if compared with the total capital offered in the first demand stimulus package. What do you think are the reasons, the complicated procedures set by banks or businesses’ hesitance to apply for loans?
The interest rate subsidy programme has helped a lot in encouraging production. The latest report by the HCM City People’s Committee showed that industrial production in the city increased by no less than 10% in April. Credit growth depends heavily on the business performances of enterprises. At this moment, maybe the demand for capital is not really high as businesses are very cautious with borrowed capital.
A lot of banks have reported satisfactory business results for Q1. Do you think that all the difficulties are over?
I think difficulties are still ahead. In Vietnam, the efforts made by ministries and branches have helped prevent unemployment from expanding. However, businesses are still facing big difficulties, thus affecting the operations of banks.
It always happens that non-performing loans increase after a crisis period.
As far as I know, many banks have set ambitious plans of obtaining high credit growth rates of up to 90%. Do you think that this is risky, as non-performing loans are always latent when banks have hot credit growth?
It would be very dangerous to set high credit growth targets of 90% and try to obtain them at any cost, without concern for the capital adequacy ratio. Banks can obtain high growth rates only when the national economy performs well.
Overly low interest rates will make it difficult to attract idle capital from people. I think that the basic interest rate is likely to be stabilised. These factors mean that high credit growth rates will not likely be obtained.
What is your comment about the non-performing loan (NPL) situation of banks? Is it worrying that some banks had relatively high NPL rates in 2008, like Eximbank?
Eximbank’s NPL by the end of 2008 accounted for 4.7% of total outstanding loans. There is no worrying problem with the NPLs of the banking system in HCM City, as banks all have made provisions against NPLs. Eximbank, for example, if it had not made provisions against NPLs, would have obtained the profit of VND1,500bil instead of VND960bil.
A lot of banks plan to raise chartered capital in 2009. What do you think about that?
It is really a good thing for commercial banks to increase chartered capital, because this helps them improve competitiveness. The capital increase will also help banks have VND3tril in chartered capital by 2010 as required. However, banks need to draw up plans on using capital effectively. As banks’ capital becomes higher, the banks will be under more pressure to obtain more profit and pay out higher dividends.
VietNamNet, DTCK
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