The banking sector has persistently implemented consistent strategies since the beginning of the year to facilitate businesses and individuals in accessing bank credit

The State Bank of Vietnam (SBV) said that, in an effort to increase credit, the banking sector has persistently implemented consistent strategies since the beginning of the year to facilitate businesses and individuals in accessing bank credit.

Currently, the average deposit and lending interest rates stand at 3.1% and 6.5% per annum respectively, representing a decrease of 0.4% and 0.6% from the end of 2023.

Weak production discourages borrowing

As of March 27, outstanding credit debt to the economy was more than VND13,651 trillion (US$590 billion), an increase of 0.61% over the end of 2023. 

At the same time, credit has been focused mainly on priority areas. By the end of February, credit for agriculture and rural development accounted for 24.35% of outstanding loans across the economy; small and medium-sized enterprises (SMEs) accounted for 17.94%; the export sector credit accounted for 2.25%; and the credit for supporting industries accounted for 2.75%. 

However, credit growth has been low this year due to seasonal factors, including the Lunar New Year holiday and weak capital digestion by companies. Positively, credit recovered and regained growth in March.

At the seminar "Unleashing capital sources to the market" held in Ho Chi Minh City last weekend, Dr. Truong Van Phuoc, Former Acting Chairman of the National Financial Supervisory Commission, said that the current credit congestion is like a driver seeing a green light but being unable to reach and pass it. We must consider many angles to see why businesses are cautious and hesitant to borrow money.

In fact, when credit was unlocked and interest rates were cut, businesses were already in a very difficult situation. According to data recently released by the General Statistics Office (GSO), 73,900 companies left the market in the first quarter, an increase of 22.8% over the same period of 2023. On average, nearly 24,700 businesses withdrew from the market each month.

“Business health is weakening and difficulties are real. Among three pillars of the economy - consumption, investment and export, consumption grew only 5.1% in the first quarter while it jumped 10.1% in the same period of 2023, evidencing weakening consumer demand," he said.

From a business perspective, Ms. To Thi Tuong Lan, Deputy General Secretary of the Vietnam Association of Seafood Exporters and Producers (VASEP), informed that the seafood industry always has a big export value but it witnessed a sharp decline of as much as nearly 20% in 2023, failing to reach US$9 billion.

She attributed this decline to the shortage of business orders from key markets, thus companies felt reluctant to borrow money. As for 20 top exporters that often borrow USD loans, exchange rate volatility is not good for them and exporters have thus slowed down on borrowing and waited for more positive signals from major export markets.

Meanwhile, small and medium-sized enterprises (SMEs) with good strategies and good relationships with banks are accessible to credit provided that they have a good financial history. Nonetheless, many said they find it hard to access the preferential loan package of VND15,000 billion. Some even are unaware of this support package.

SMEs are borrowing at a common interest rate of 6-7% per annum. Small businesses without collateral assets can borrow at an interest rate of 8-8.5%, she said.

Thus, she proposed that banks consider lowering interest rates for USD loans to less than 4%. In addition, banks need to publicly disseminate preferential loan packages to businesses.

Unlocking credit sources

Dr. Truong Van Phuoc said, the world is recovering and inflation is easing. The most difficult time has passed. Many studies showed that inflation is likely to go down until 2028 and open up economic recovery prospects.

He said that it is necessary to further lower interest rates in the long run. VND interest rates are low. So, if they need foreign currencies to make payments, companies should borrow VND loans to buy foreign currencies. This is a more effective approach. If they need to borrow foreign currencies, commercial banks should exchange foreign currencies from national forex reserves. They should provide foreign currency advances with moderate interest rates to support exports.

Regarding exchange rates, when the local currency depreciates 2-3% in a quarter, the State Bank of Vietnam (SBV) needs to have a voice to reassure the market because rising exchange rates undermine many things, including investor confidence in Vietnam, he said.

The U.S. Federal Reserve (Fed) only has a certain impact on the Vietnamese economy, Phuoc noted. In the third quarter of 2024, the U.S. dollar may decline when the Fed cuts its policy rates.

Given Vietnam's conditions, keeping the exchange rate stable in the range of 3 - 4% is within the reach of the SBV. It is absolutely impossible to increase interest rates to compensate for exchange rate volatility because it is the most expensive trade-off.

SBV Deputy Governor Dao Minh Tu said, unlocking capital sources for the market is a matter of concern to the Government, the Prime Minister, the SBV and the people. However, although bank credit is abundant, it is still rather difficult for some businesses to access it, especially when the interest rates are lowest in 20 years. “For commercial banks, the SBV always ensures adequate liquidity, even surplus," he added.

In addition, as a regulator, the SBV has adopted policy tools to ensure favorable conditions for businesses to access capital.

“There is no shortage of capital for the economy. The credit room of 15% was assigned to commercial banks by the SBV at the start of this year. If economic conditions are favorable and the economy needs capital for areas that are growth engines, the credit room can be widened,” he emphasized.

To help companies to tackle hardships in the way, the SBV continues to direct credit institutions to restructure debt repayment terms and keep debt categories unchanged as per Circular 02. To help customers restore production and business operations, the SBV asked the Government to extend the effectiveness of Circular 02 for another six months instead of ending on June 30.