Find the drivers for year-end credit growth.

Various ways to stimulate demand.

To stimulate credit growth, commercial banks have implemented many programs and solutions to support businesses and individuals. Specifically, after a week of implementing the 7,000 billion VND package with interest rates from 8.8%/year, BVBank recently continued to implement a preferential loan package with a reduction of up to 2%/year, worth 1,000 billion VND, for small and medium-sized enterprises with interest rates starting from only 8.5%/year.

Similarly, Sacombank currently has a 30,000 billion VND credit package for individual customers borrowing at interest rates from 7.5%/year for production and business and 9%/year for consumer loans; and an 11,000 billion VND credit package with interest rates from 6.2%/year for businesses borrowing to develop production and business.

In addition to implementing a 3,000 billion VND credit package for the forestry and fisheries sectors with interest rates 1-2% lower per year than usual, Agribank has also allocated an additional 10,000 billion VND with an interest rate reduced by 0.7% per year compared to usual to provide small and medium-sized enterprises with additional working capital to implement their production and business plans.

Mr. Dinh Ngoc Dung, Deputy Director in charge of the Corporate Banking Division ofSHB , said that in addition to implementing short- and medium-term credit programs for manufacturing and business enterprises with interest rates up to 2% lower per year than conventional loans, SHB also simplifies the lending process and reduces costs to lower lending interest rates to support businesses and individuals. Furthermore, SHB develops customized programs for each corporate customer to stimulate credit demand.

According to Mr. Tu Tien Phat, General Director of ACB, in the first six months of 2023, ACB implemented many solutions to stimulate credit demand through preferential loan programs totaling VND 30,000 billion, with interest rates reduced by up to 3% per year compared to the standard interest rate schedule, widely applied to all customers, without limitations on target groups or sectors.

“Reducing lending interest rates is crucial for ensuring credit growth, minimizing the risk of bad debts, and contributing to the development of the domestic economy. ACB will continue to implement solutions to further reduce lending interest rates to support businesses and individuals in recovering and developing production and business activities,” said Mr. Tu Tien Phat.

Don't loosen it too much.

According to estimates from securities companies, lending interest rates have decreased by approximately 1.5%-2% since the beginning of the year. Many commercial banks are offering mortgage interest rates of only 7%-8% per year, but in reality, there is still a clear disparity. For businesses with good credit quality, lending interest rates have fallen below 10%; however, for businesses with poor credit quality, interest rates remain at 12%-17% per year.

Dr. Can Van Luc, chief economist at BIDV, recommends that, in order to stimulate credit demand and support economic growth, there needs to be effective coordination between fiscal and monetary policies, as well as other macroeconomic policies, and a proper assessment of the current state of businesses to address existing problems and obstacles.

In this context, Dr. Le Xuan Nghia, an expert in economics and finance, commented that one of the biggest risks facing the Vietnamese economy today is the persistently high lending interest rates. Many businesses are still paying interest rates exceeding 10% per year, even though the State Bank of Vietnam has made numerous efforts to reduce the policy interest rate.

However, according to Mr. Nghia, it is highly likely that the Fed will stop raising interest rates by the end of this year and may lower them from the end of next year. Europe may also stop raising interest rates from the end of this year due to inflation falling faster than expected. This is an opportunity for the State Bank of Vietnam to further reduce interest rates, supporting businesses.

Regarding whether monetary policy should be loosened to support economic growth, Mr. Tran Ngoc Bau - CEO of Wigroup, a provider of financial data and market research, commented that in the current difficult economic period, unlocking capital for the economy and easing regulations for the banking system is the most urgent thing, because getting caught in a "cycle of decline" will be very difficult to escape.

However, Mr. Bau also expressed concern that boosting credit in the current state of weak demand would inevitably lead to a distorted flow of credit, diverting it into risky areas. Nevertheless, this is a necessary solution to alleviate the capital shortage in the economy. Once things have stabilized, adjustments can be considered.

Meanwhile, Mr. Nguyen Ba Hung, chief economist in Vietnam at the Asian Development Bank, argued that although the State Bank of Vietnam's interest rate reduction policy has had a positive impact on the market, credit growth in the first seven months of 2023 remained low, indicating that the effectiveness of the interest rate reduction still depends on the credit demand of the economy. Therefore, the regulatory body needs a flexible policy to support credit but should not be too lenient, as this could create an "asset bubble" when money flows into speculative products instead of the real economy.

According to Mr. Hung, when businesses' production and business activities do not generate profits higher than the borrowing interest rate, they will still not borrow capital for investment to support production activities. Therefore, the impact of monetary policy on aggregate demand is only indirect through the supply of credit, while the impact of fiscal policy and policies to stimulate consumption and private investment will directly affect economic activity.

Source: https://www.sggp.org.vn/tim-dong-luc-thuc-day-tin-dung-cuoi-nam-post702179.html