Current credit limit lower than expected | Business

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Eleven banks were allowed to extend their credit for the third time because they had reached their credit limit in less than nine months. Among these, four commercial banks obtained a margin of more than 20%, of which TPBank received from 17.4% to 23.4%; Techcombank received from 17.1% to 22.1%; MSB received from 16% to 22%; and MB received 15% to 21%. The VIB also increased to 19.1%; VPBank at 17.1%; OCB at 15%; and ACB at 13.1%. Among state-owned commercial banks, Vietcombank has been granted the highest credit limit of 12.5% ​​to 15%; and BIDV and VietinBank saw increases to 12% and 12.5%, respectively.

From the start of this year, the credit limit granted by the State Bank of Vietnam was lower than the banks’ expectations, which they quickly exhausted around the beginning of June. The State Bank of Vietnam typically increases the credit limit twice a year for banks that use all credit. On the positive side, opening a line of credit for commercial banks is a good thing, but banks have conditions to lend amid a rebound in credit, such as the pandemic situation. of Covid-19. As of November 25, growth in outstanding loans in the economy as a whole reached 10.1%. That figure as of October 29 was 8.7%. That is to say, in just one month, credit increased by 1.4%, or the equivalent of 120,000 billion VND loaned. Forecasts suggest that industry-wide credit growth can be achieved at 13%.

By expanding the line of credit at this point, it will hit several targets, which will also send a positive signal for the economy to reopen. Currently, the room for maneuver in monetary policy is limited and the State Bank of Vietnam cannot further reduce the operating interest rate, and it is also difficult for commercial banks to continue lowering rates. deposit. In such a context, banks are running out of lines of credit. If the margin is not extended, banks that lack it cannot continue to lend, and banks close to target will be cautious about accepting loan requests from customers. Usually, the limited credit balance will cause the interest rate to rise to compensate for the profit, as credit is the main source of profit for banks.

At the request of the State Bank of Vietnam, banks have reduced interest rates to support economic growth, helping businesses and borrowers cope with their hardships during the ongoing pandemic. As a result, the banks reduced part of the interest income. The expansion of the line of credit will offset the profits, although it may not be evident in the fourth quarter of this year, but will serve as a basis for growth for years to come and into the future.

On the other hand, the extension of the credit limit at the moment is quite sensitive, as it is not certain that the corporate sector can absorb this flow of capital. Credit rebounded strongly towards the end of the year last year as well, with many experts saying credit was pouring into risky areas such as securities and real estate. Indeed, credit growth is very strong but GDP growth is very low. In other words, the flow of credit is not efficient for economic growth, but only for investment and speculation.

This year, according to new data released by the Ministry of Construction according to the report of the State Bank of Vietnam, as of September 30, the credit balance of real estate companies reached 682,594 billion VND. At the end of June, that figure was VND 672,224 billion, an increase of VND 10,370 billion in three months. This was also due to the clandestine credit granted to real estate through the channel of consumer credit. Likewise, the credit for the securities segment is weak, but as Saigon Investment analyzed, it is very likely that the source of money for consumer loans will be split into this segment as well. The report also showed that in the third quarter, the speed of personal lending continued to accelerate, while lending to SMEs and large businesses slowed due to prolonged social distancing.

Banks are always opening their credit doors to production companies and businesses, because it is this group that must support the recovery. However, according to Asso. Teacher. Dr. Tran Dinh Thien, former director of Vietnam Institute of Economics, at present, many companies’ cash flow is depleted, their lending conditions are very bad, and it is difficult to meet the lending standards of the banks. Currently, the banking system has restructured around VND 600 trillion in outstanding loans and this number is expected to increase sharply next year. Statistics show that up to VND 3 trillion of outstanding loans is affected by the Covid-19 pandemic. The growing structural debt balance shows that businesses are in dire straits.

Therefore, there is a risk that bad debts will increase in the coming quarters as the loans gradually begin to mature. Currently, on average, around 10,000 companies exit the market each month, most of which are direct customers of banks. During the restructuring period of the banking system from 2016 to 2020, the bad debt ratio on the balance sheet of commercial banks fell from 1.99% at the end of 2017 to 1.9% at the end of 2018 and at the end of 2019 to 1.63%. However, the bad debt rate increased again due to the impact of the pandemic, to 1.69% at the end of 2020 and to 1.9% at the end of September of this year, which is almost back to the level it has reached. ‘it was in 2017. These factors limit the ability of companies to access capital. Therefore, banks will not lend to all businesses because they cannot lower their lending standards. Therefore, whether or not companies can borrow depends on their health and collateral.

Banks approaching credit limit see growth in corporate bonds. This was granted by the State Bank of Vietnam in the third quarter to increase the line of credit. Banks mainly hold corporate bonds of other credit institutions and real estate companies and possibly use this line of credit to legitimize their capital.

Yen Lam

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