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Stagnant capital outflow may hinder economic recovery
The negative credit growth rate of the banking system in the first two months of this year has raised concerns over the possibility of a slowing of the country’s economic recovery.
However, experts have said it is the substantive rate of the economy, not an unreal one like it was years ago.
Total outstanding loans in the whole banking system to the beginning of February 2013 inched down 0.16 percent from the end of 2012, according to the State Bank of Vietnam (SBV).
Many banks said the lending situation in the early months of the year is very bleak for many reasons.
Normal cycle
Nguyen Phuoc Thanh, general director of the partially state-owned Vietnam Bank for Foreign Trade (Vietcombank), said that in the first two months of 2013, credit growth at the bank was at 1-2 percent negative, equivalent to VND5-6 trillion worth of capital staying idle.
"Negative credit growth in the first two months is not necessarily worrisome, but needs to be considered as an expectation that the growth rate will be modest this year, as both the lenders and borrowers will be more cautious," Thanh said.
Chairman of the Board of the Vietnam Bank for Agriculture and Rural Development (Agribank), Nguyen Ngoc Bao, said if taking only rural and agricultural credit into account, the growth rate was 0.9 percent. According to Bao, such a phenomenon is cyclical.
Regarding the fact that credit continuously maintained a low level for more than a year, he said that it was "a reasonable adjustment of the economy."
Trinh Van Tuan, chairman of the board of Orient Commercial Bank, said the bank was in the same boat.
"Credit growth slowed down because businesses have yet to plan out new investment or expansion as they have yet to clear their inventories in the face of low demand," Tuan said.
Dr. Vu Dinh Anh from the Institute of Economy and Finance under the Ministry of Finance said the growth rate in December last year rose sharply, equaling the growth in the previous 11 months combined, so there should be some unreal factors.
Therefore, the negative credit growth in the first two months of 2013 is really just a return to normal.
In the context of the economy, there were still no clear signs of economic recovery, so credit cannot increase, which is also normal.
According to Anh, the data breakdown showed another story, credit growth in January alone dropped 1 percent, but the rate improved at a 0.16 percent negative rate in the beginning of February.
Unreachable 12 percent growth?
Many experts worried that if this momentum is maintained, credit growth in 2013 will not reach the 12 percent target set by the central bank.
Experts are also concerned about the effect this will have on the economy, such as a stagnated manufacturing sector and a slowdown in job creation.
But the banks have a more optimistic view.
Nguyen Phuoc Thanh said the bank’s plan this year is 15-16 percent, not just 12 percent, as it is a large state-owned bank with a strong reputation. On the other hand, only large banks have the ability to invest in big projects with competitive interest rates, while many small banks primarily focusing on retailing.
Some companies have accessed loans with interest rates of 8-9 percent per annum, while the average lending rate of the whole system is 10 percent.
Trinh Van Tuan said that OCB is likely to increase to 15 percent of total outstanding credit, equivalent to some VND3 trillion.
If state management agencies offer positive solutions, companies will see an opportunity to do business again, and they will start new projects which will increase credit growth, said Nguyen Thanh Toai, deputy general director of Asian Commercial Joint Stock Bank.
Dr. Tran Hoang Ngan, vice head master of the Ho Chi Minh City University of Economics, said that the Government has issued many policies to unfreeze credit outflow, adding that the problem now lies in how banks implement those policies.
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