Banking and finance expert Nguyễn Trí Hiếu

The banking industry has experienced a difficult period in 2023 due to global and domestic headwinds. However, the industry outlook is forecast to be more positive next year when credit growth improves.

Việt Nam News reporter Thu Hà talked with banking and finance expert Nguyễn Trí Hiếu about the issue.

How do you assess the business performance of the banking industry this year?

Banking industry business performance this year has faced challenges due to the global and domestic uncertainties. Under the context of low credit demand, declining non-credit revenue and rising risks of bad debt, the growth rate of the banking industry in 2023 is estimated to be slower than last year.

Profits of many banks this year are forecast to be less positive because credit of the banking system as of November 22 this year increased by only 8.21 per cent, while profits of banks mainly come from credit growth. However, there have been notable variance in the profits of banks this year: while some large banks continued to experience double-digit growth, small banks saw a sharp downturn.

The number of firms having to close their doors in the country in the past 11 months averaged more than 14,400 per month, showing that Việt Nam's economy continues to face difficulties. Regarding monetary policy, the State Bank of Vietnam (SBV) is still looking for ways to reduce interest rates while the US Federal Reserve (Fed) continues to keep interest rates at a high level, causing a large interest rate gap between US dollar- and Vietnamese đồng-denominated deposits. All of these reasons will make it difficult for Việt Nam's economy to gain a breakthrough and achieve strong growth in the last quarter of this year. Therefore, the banking industry cannot expect a surge this year.

Can the banking industry meet the SBV’s 14 per cent credit growth target set early this year?

Credit demand so far this year has increased slowly in most industries. As of November 22, 2023, the credit growth of the whole banking system was only at 8.21 per cent. I forecast the credit growth this year will be at 10-12 per cent, lower than the SBV’s 14 per cent target.

However, this low credit growth rate is in line with Việt Nam’s GDP growth rate this year. The country earlier this year set a 6.5 per cent GDP growth target; to meet this GDP growth target, credit growth must also be about 14 per cent. To date this year, GDP growth is estimated to be lower than the 6.5 per cent target and will reach only about 5 per cent in 2023, so credit growth must also be lower and the 10-12 per cent credit growth rate is reasonable.

The Government has so far taken measures to boost credit, but the results have remained modest. What is the root of the problem?

Firstly, credit activities depend on the needs of the borrowers. It means the credit growth depends on the economy's ability to absorb capital. It must be said that the capital demand of the economy has declined significantly when more than 14,400 firms dissolved per month on average in the first eleven months this year.

In fact, many small- and medium-sized firms have needed capital but they cannot borrow because they do not have mortgaged assets. And if there are mortgaged assets, the value of the assets is going down so they can only borrow 70 per cent of the value of the mortgaged assets.

Secondly, banks themselves are hesitant to lend this year due to the economic difficulties. When the economy grows and trade goes smoothly, banks see the opportunity for firms to repay debts, and banks will lend. However, when the market is stagnant as this year, loans will be at risk of becoming bad debts, so banks are very cautious in lending and do not dare to lend even though they have a money surplus.

As economic difficulties are forecast to last until early 2024, to promote credit growth, the banking system needs to find plans to boost unsecured loans, instead of mainly focusing on mortgaged loans as currently.

In addition, firms generally, small ones in particular, need credit guarantees to be able to borrow to have enough capital for production and business activities. This policy will help banks promote lending.

Can you forecast the outlook of the banking industry in 2024?

As credit growth plays a key role in banks earning profits, the outlook for the banking industry next year is expected to be more positive than this year thanks to higher credit growth.

I think the credit growth next year will improve as the world’s economy recovers and exports increase. This will create more jobs and boost consumer spending, which will help business prospects of firms become more positive, and they will have higher capital demand.

The Government’s fiscal policies and the SBV’s credit policies related to lowering interest rates will also drive credit growth next year. Notably, if the Fed can keep interest rates unchanged before the US 2024 presidential election, I think the credit picture next year will get better.

As the SBV’s monetary policy is likely to be continually loosened in the end of 2023, the economy will be more positive in 2024. The SBV can continue to cut its policy rate by 0.25 basis points next year. However, Việt Nam should be careful with the monetary policy, because the country is loosening monetary policy in contrast to the world’s tightening policy. In fact, reducing interest rates has no effect on economic growth or credit growth, but it is having strong adverse impacts on the declining stock market, the increasing foreign exchange rate, and the devaluation of the Vietnamese đồng.