Optimistic Credit Growth

As of the end of June, Vietnam's economic credit increased by 6% compared to the end of 2023. This credit expansion has been directed mainly toward key economic growth drivers and aligns with emerging trends, including the emphasis on green credit initiatives.

Credit growth accelerated significantly, rising from 3.4% year-on-year at the end of May to 6.0% by the end of June

Mr. Dao Minh Tu, Standing Deputy Governor of the State Bank of Vietnam (SBV), said: In the first half of 2024, the global economy grappled with ongoing challenges and uneven growth across various countries and regions, driven by tightened financial conditions, geopolitical conflicts, and rising financial risks. The U.S. Federal Reserve maintained higher policy rates for longer than anticipated by the market, while varying monetary policies among central banks led to widespread currency depreciation. Despite experiencing positive recovery and stable inflation, the Vietnamese economy continued to confront significant challenges, including external shocks, internal issues, and the lingering effects of the COVID-19 pandemic.

In that context, SBV has proactively monitored global developments and domestic economic conditions to implement cohesive strategies aimed at facilitating access to bank credit for businesses and individuals. These measures have been designed to restore production and business activities, enhance capital absorption in the economy, and promptly address credit demand. As a result, the SBV's efforts have contributed to economic growth, macroeconomic stability, effective inflation control, and the safety and soundness of the credit institution system.

According to the SBV, the total outstanding credit balance of the economy reached nearly VND14,400 trillion by the end of June 2024, reflecting a 6% increase from the end of 2023. This growth rate marked a significant acceleration from the 2.41% recorded by the end of May, with an additional VND487 trillion in credit being introduced in June alone. This performance aligns with the growth targets recommended by the Prime Minister. By the end of the second quarter of 2024, credit growth had reached 5-6%.

To achieve such credit growth, many commercial banks had to build and continue to offer a series of preferential credit packages for businesses. In particular, Vietcombank, Agribank and MB reported higher growth in June 2024 than in previous months.

According to the credit trend survey conducted by the Forecasting and Statistics Department (SBV), credit institutions in the first half of 2024 generally maintained or slightly eased credit standards as anticipated. This adjustment aligns with the survey's projections for the last six months of 2023. The easing was observed across various sectors, including high-tech investment, supporting industries, home loans, logistics, processing and manufacturing, import-export, as well as investment in tourism and personal loans. Additionally, credit standards were relaxed for securities investment and trading, real estate investment and trading, finance, banking, insurance, and construction sectors.

In the second half of 2024, credit institutions are expected to slightly ease credit standards compared to the first half, extending this relaxation across nearly all customer segments and sectors. However, credit standards for four sectors—real estate investment and business loans, securities investment and trading loans, finance, banking and insurance loans, and construction loans - are anticipated to be tightened, though less than in the first half. This trend is attributed to a positive macroeconomic outlook and the favorable impact of government and SBV policies on economic sector development and credit management.

The overall credit demand by customers was assessed only as a slight recovery in the first six months of 2024 by credit institutions, much lower than the expected level recorded in the previous survey. Credit institutions expected the demand to pick up in the second half of 2024, with focus on corporate customers and the processing and manufacturing industry.

In 2024, 79.4% of credit institutions in this survey (lower than 82% in the previous survey) anticipated an increase in the overall credit demand of customers as compared to 2023. Among four main surveyed areas, the loan demand for livelihood and consumption was highest, anticipated to look up in 2024, instead of the industrial development and construction loan seen in the previous survey.

Wholesaling and retailing, import and export, steel and other metals, and processing and manufacturing are seen as four biggest drivers of credit growth in 2024 and possibly in 2025 by many credit institutions.

Based on the first half results and world and domestic economic forecasts, Deputy Governor Dao Minh Tu said that, in the remaining months of the year, the SBV will continue to adjust interest rates in accordance with macroeconomic balance, inflation, and monetary policy objectives. The SBV will also guide credit institutions to reduce costs in order to lower lending interest rates. Additionally, the SBV will manage exchange rates flexibly to stabilize the foreign exchange market, control inflation, and maintain currency value.

Regarding credit growth, the central bank will reasonably manage credit growth and structure and meet credit demand of the economy to rein inflation and support economic growth; continue to boost credit in key areas - driving forces of the economy; continue to promote specific credit programs and policies; remove difficulties for businesses and people; and strictly control credit for areas with latent risks. It will continue to review and perfect the legal framework to facilitate credit supply and access.

Regarding the preferential loan package of VND120 trillion for social housing and worker housing development, the SBV is asking the Government to increase preferential conditions for home buyers while businesses will still enjoy previous incentives, he added. At the same time, the central bank will also encourage and facilitate commercial lenders to take part in the program. As for the support package of VND30 trillion for forestry and fishery, if fully implemented, the banking sector will have additional capital (VND15 trillion) to support target borrowers because these sectors create momentum for exports.

By Quynh Chi, Vietnam Business Forum