Banks are still having difficulty lending.

Many businesses are reluctant to borrow, while others who need loans do not meet the eligibility criteria, resulting in credit growth of only 3.3% in the past six months, the lowest level in many years.

This information was announced by the State Bank of Vietnam at a press conference summarizing the results of monetary policy management and banking operations in the first half of the year, on June 21st.

Accordingly, as of June 15th, outstanding loans to the entire economy reached approximately 12.3 million billion VND, an increase of only 3.36% compared to the end of last year and nearly 9% compared to the same period last year. Compared to the end of April, credit flowing into the economy increased by only 0.3%, equivalent to nearly 36,000 billion VND.

According to Deputy Governor Dao Minh Tu, credit growth has slowed down due to several reasons. One of the biggest reasons is the overall difficult economic context, with reduced investment and consumption demand, leading to a corresponding decrease in credit demand. Many businesses lack orders, have high inventories, and production has stalled, resulting in reduced borrowing needs.

Mr. Tú recounted meeting with credit officers at commercial banks, asking why it was difficult to grant loans. These officers explained that lending was a key performance indicator (KPIs) for them; failure to meet KPIs would result in reduced income. The problem, they argued, was that customers themselves had no need for loans, and some even asked to return the borrowed capital.

"Many businesses say they don't have plans for further investment. Finding customers and persuading them to maintain outstanding loans is difficult at this time," the Deputy Governor said, adding that from a macroeconomic perspective, the current slow credit growth is a concern for the Government, the Prime Minister , and the State Bank of Vietnam.

Deputy Governor Dao Minh Tu at the State Bank of Vietnam's press conference on the morning of June 21. Photo: SBV — Deputy Governor Dao Minh Tu at the State Bank of Vietnam's press conference on the morning of June 21. Photo: *SBV*

Besides the difficulties from the overall market, slow credit growth also stems from several other reasons. Among them, some customer groups have a need for loans but do not meet the loan eligibility requirements. "The economy's ability to lend and absorb capital must reach a balance; we cannot try to lend at all costs," commented Deputy Governor Dao Minh Tu.

Regarding interest rate management , from March to the present, the State Bank of Vietnam has continuously adjusted the basic interest rate downward four times, by 0.5-2% per year. The average deposit interest rate of commercial banks is currently around 5.8% per year (down 0.7% compared to the end of 2022). The average lending interest rate in Vietnamese Dong is around 8.9% per year (down 1% compared to the end of 2022).

According to the Deputy Governor, the reduction in the policy interest rate and the subsequent movement of lending interest rates in the market often have a time lag, because the input cost of capital for many loans remains high. When interest rates rise sharply, many people choose to deposit money for longer terms. However, the representative of the State Bank of Vietnam stated that banks must share the difficulties with businesses and the economy by reducing the burden of borrowing costs.

"The argument that banks still have to lend at high interest rates even when mobilizing funds is not wrong, but during difficult times, banks should share the burden, using funds from one source to offset another so they can significantly reduce interest rates," Mr. Tú said.

According to an assessment by SSI Securities Company's Research Department, most policy interest rates have decreased to levels equivalent to those of 2020, when the State Bank of Vietnam implemented a loose monetary policy to support the economy affected by Covid-19.

Although this is a proactive move by the regulatory body in the context of a challenging economy, the analysis team believes that lowering the policy interest rate is not a sufficient condition at the present time. "Improving output for businesses and the practical implementation of government solutions will have a greater impact on lending interest rates in the market," the SSI Research report stated.

In addition, exchange rate pressure also needs to be considered given the unclear path for the US Federal Reserve's interest rate policy, as well as inflationary pressure given the high level of core inflation.

Minh Son

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