The credit growth reached about 12.56 million billion VND as of September 29, up only 5.33% from the end of 2022, much lower than 9.87% in the same period in 2022.

Mr. Dao Minh Tu, Permanent Deputy Governor of the State Bank of Vietnam, recently stated that if firms are currently stockpiling products, commercial banks have extra liquidity.

Diagnosis

The banks' excess liquidity is due to relatively poor loan growth in the early months of the year, despite the fact that lending interest rates have fallen by roughly 2-3% since the end of 2022. According to the State Bank's report, credit growth reached about 12.56 million billion VND as of September 29, up only 5.33% from the end of 2022, much lower than 9.87% in the same period in 2022 and only reaching about 38% compared to the State Bank of Vietnam's full year credit growth orientation of 14%.

The excess liquidity of commercial banks is plainly seen in the interbank market. As a result, interbank rates have reached a two-year low. The overnight rate is around 0.17%/year, while the 1-week term interest rate is merely 0.35%/year and the 2-week term rate is 0.44%/year.

There are two key reasons for commercial banks' excess liquidity, according to financial analysts. First, because firms lack orders for manufacturing and have large inventories, they are hesitant to get bank loans to boost production and company. Second, the health of enterprises has been harmed by Covid-19 and the impact of the Russia-Ukraine war, and they are unable to satisfy bank lending conditions.

How to scope with this fact?

According to a financial expert, there are two sources of commercial banks' excess liquidity that must be handled.

First, firms' access to bank credit must be improved. To do this, banks must streamline procedures and be more flexible with loan conditions, particularly collateral requirements. "Banks need to be more flexible in lending based on cash flow or a business's inventory," the aforementioned expert stated.

However, banks can't lower credit requirements. Because they are financial intermediaries, and lending capital is primarily mobilized from the public, so capital preservation is a mandatory requirement in banks' credit activities.

Second, output must be made available for manufacturing and business. However, the banking system alone is insufficient; simultaneous engagement of agencies, departments, and local governments is required.

That is also the State Bank's viewpoint. As a result, it has proposed four groups of solutions: first, solutions to stimulate investment and consumption to promote economic growth drivers; second, solutions to develop various types of markets (corporate bonds, real estate); third, solutions to improve enterprises' capacity to absorb capital; and fourth, solutions on currency, credit, and interest rates.

Furthermore, Dr. Can Van Luc, a banking and finance expert, stated that the undisbursed amount of the Economic Recovery Program, particularly the rent support, 2% interest rate support..., should be transferred to the social housing development Fund to provide low interest loans and create "prey capital," while improving the operational efficiency of the Small and Medium Enterprises Development Fund and SME credit guarantee funds in localities...