Enhancing access to credit is a major concern for the entire society

Ample liquidity

 Mr. Dao Minh Tu, Standing Deputy Governor of the State Bank of Vietnam (SBV), stated that the economy experienced rapid and unpredictable fluctuations in the first six months of 2023 due to global manufacturing and trade recession, fiercer strategic competition and geopolitical conflicts among major countries, high inflation, tight monetary policy and prolonged interest rate hikes. Domestically, economic growth was lower than expected due to global aggregate demand contraction, internal economic difficulties, declining shipments to large traditional import and export markets in the wake of the COVID-19 pandemic; erosion of Vietnamese companies’ resilience; and inflation facing many potential risk factors. These developments slowed global and domestic economic recovery and posed many difficulties and challenges that directly affected capital absorption of businesses. This was also attributed to slowing credit growth in the first six months of the year although the SBV and the banking industry made great efforts to apply many solutions to enhance access to capital for enterprises and people. According to statistics, credit growth was lower than previous years at about VND12,500 trillion (US$543 billion), an increase of just 4.73% from the end of 2022

Ms. Ha Thu Giang, Director of the SBV Credit Department for Economic Sectors, stated that the State Bank of Vietnam (SBV) has actively adopted various solutions to enhance credit accessibility and absorption for people and enterprises. These include directing credit institutions to diversify banking products and services and simplify lending procedures; strongly and deeply carrying out bank-business connection programs; actively informing and disseminating credit mechanisms, policies, and programs in various forms to make people and businesses understand and approach banking credit policies, products, and services; and accelerating some consumer credit programs.

The SBV has made four policy rate cuts (regulatory rate, ceiling rate on VND deposits with terms of less than six months and ceiling rate on short-term VND loans for various industries and fields) by 0.5-2.0% this year to facilitate credit institutions to access cheaper capital. In addition, the central bank has introduced various instructions, directly worked with credit institutions to reduce operating costs and lower deposit interest rates, thus providing more room for slashing lending interest rates.

Policy credit programs through the Vietnam Bank for Social Policies (VBSP) have also been further facilitated and promoted. As of June 30, 2023, VBSP’s total outstanding policy credit was VND304,431 billion (US$13 billion), an increase of 7.4% from 2022, with more than 6,677,000 poor, near-poor households and entities indebted to VBSP. The outstanding balance of credit policies within the framework of the socioeconomic recovery and development program was VND19,090 billion.

According to Deputy Governor Tu, the State Bank of Vietnam (SBV) monitors and administers rate cuts/hikes, increases/decreases money supply and rationalizes credit value and quality, bad debt squeeze and national financial security. The safety and soundness of the credit institution system will determine the safety and soundness of the national finance in the short, medium and long terms.

However, credit is currently the central matter. Under the direction of the Government and the Prime Minister, SBV is aware of its responsibility to help businesses overcome current difficulties. Arguably, liquidity for the economy is now very abundant. The interest rate - which directly affects input prices - is managed in harmony with the exchange rate; otherwise, it will not create confidence among domestic and foreign investors, which will greatly impact national interests.

Consistent solutions are in place

Mr. Nguyen Van Than, Chairman of the Vietnam Association of Small and Medium Enterprises, said that companies, especially SMEs, are facing very difficult situations because domestic consumption and export orders have plunged sharply. In addition to output consumption, up to 25% of the association’s members are struggling to access credit loans due to strict lending criteria.

In fact, a considerable number of companies cannot get credit. Besides subjective market impacts, inconsistent State policies are blamed for this situation. Furthermore, enterprises themselves cannot prove their repayment capacity, governance, business planning and financial transparency. Therefore, rate cuts are just one of the solutions to boost capital absorption of enterprises.

He suggested that the State and the Government need to implement SME support measures with various solutions like amending the Law on SME Support to better assist companies in need to enable them to restructure production capacity for stable, long-term development. SME support solutions include assisting SMEs to take part in 30% of public investment projects; effectively implementing support solutions for SMEs to achieve sustainable development and develop value chains.

For their parts, businesses necessarily upgrade their governance, business planning and financial transparency. As soon as banks are assured of corporate health, they will certainly not refuse to give loans.

According to Mr. Ketut Ariadi Kusuma, Senior Financial Sector Specialist, Head of the Competitive and Innovative Finance Group of the World Bank (WB) in Vietnam, the current slow credit growth was driven by weak demand amid global economic recession that undercuts trade activity and undermines domestic production, thus adversely affecting income and consumption. As a result, weak demand should be addressed by policies to stimulate aggregate demand. This is best achieved through more expansive fiscal policy tools. He believed that Vietnam has the fiscal space to do this.

According to economist Can Van Luc, not only businesses but also banks are now facing many big risks such as growing bad debt, narrowed profit margins and capitalization pressure. Increasing capital absorption for the economy “saves” both businesses and banks.

To enhance capital absorption for businesses and people, it is necessary to speed up VAT refund, rescheduled payment of taxes, fees and land rents, and 2% VAT reduction; consider reducing social insurance payment rates for enterprises; consider transferring the rest of the Socioeconomic Recovery and Development Program to the Social Housing Development Fund. Moreover, it is necessary to focus on growth drivers, accelerate public investment disbursement, stimulate domestic consumption demand and speed up economic locomotives. At the same time, there is a need for solutions to address problems for the corporate bond market and speed up institutional improvement.

Deputy Governor Dao Minh Tu said that in the coming time, the SBV will use monetary policy tools more flexibly to regulate the market such as liquidity supply for the economy and using FX reserves to balance exchange rates. Additionally, the SBV will continue to reduce interest rates and harmonize its instruments to achieve immediate goals but address consequences in the long run. According to its stance, the SBV will continue to cut interest rates if possible. Commercial banks will continue to reduce costs to further cut lending rates to support businesses. Moreover, given that the Fed and other central banks started policy easing, with the current FX reserves, the SBV will continue to take hold of the exchange market and pursue its exchange rate stabilization policy.

In addition, the SBV will continue to promote credit programs and consumer policies, especially social security policies to address market sentiment and life matters. This is a very effective and practical solution at the moment.

The SBV will also continue to closely coordinate with ministries and sectors, especially in medium and long-term credit support policies for infrastructure investment and fund public investment to build traffic roads; continue to support the stock market and the real estate market; have support policies for businesses to switch from export to domestic market.

Trade associations need to strengthen exchanges and communications on instructions to member companies, and reinforce coordination with the SBV, agencies and credit institutions in providing information on State policies to effectively enable companies to access capital. Companies need to actively implement measures to restructure their operations, cut down on inefficient business and ensure finance for core business.