The economy depends on loans, so removing the credit limit  s will affect the banking system. Photo: Internet.

The “ask-give” mechanism

In 2021, the State Bank of Vietnam extended the credit growth limit  s for the third time for banks. Therefore, many banks were given permission to increase their credit growth limit   to over 20%, such as TPBank, Techcombank, MSB and MB.

Vietcombank was allowed to expand its credit room to 15%, BIDV to 12% and Viettinbank to 12.5%. On average, the credit limit   of banks in 2021 was expanded to 13.8%, nearly the whole credit growth forecasted by the State Bank of about 14%.

According to economic expert Dr. Le Xuan Nghia, the biggest limit  ation of the monetary policy in 2021 is that credit management is still under the ask-give mechanism by granting credit room to banks.

Although the State Bank explained that the granting of credit room aims to control the credit growth of the economy, the State Bank should use market tools. The granting of credit room to each bank is inconsistent with the current market.

Representatives of some banks also said that not all credit institutions are allowed to adjust the credit growth ceiling by the State Bank. When there is an application for expansion, the granted limit   is insignificant.

Moreover, the expansion for each bank is different as the management agency bases the decision on many criteria. The higher limit   will be granted to the potential bank.

Criteria for approving the credit growth limit   include capital adequacy ratio (CAR), risk management capacity, the level of social support during the difficult economic period through the exemption and reduction of interest rates and fees.

Recently, at the conference on setting out tasks in 2022 of Vietcombank, Nguyen Thanh Tung, Deputy CEO of Vietcombank's Board of Management, proposed that the State Bank should allow State-owned commercial banks to be proactive in the whole credit growth rate.

Financial expert Dr. Can Van Luc said that, in the long term, the governing authority needs to manage banks in financial indicators instead of administrative tools, which is the credit growth ceiling.

Controlling risks

Speaking to the press about grating credit growth limit  s for banks, the SBV Deputy Governor Dao Minh Tu said Vietnam's credit rate accounts for over 140% of GDP, which means the economy is still dependent on bank loans, so if the limit   is removed, it will cause a lot of instability. According to Tu, if there have no effective management and appropriate credit growth, the commercial banks will face instability.

“We can imagine that if the credit increases a few percent per year and the credit quality is not guaranteed, the bad debts will rise after one or two years, so we must control this to ensure capital supply while controlling inflation,” said the Deputy Governor.

However, the State Bank’s leader also said that the method of applying the credit ceiling may change in the future when the market develops, the medium and long-term investment capital is disbursed in the financial market, and the short-term capital is not mobilized for long-term loans.

According to the State Bank's announcement, as of December 22, 2021, the credit to the economy increased 12.68% compared with the end of 2020 and about 14.57% year-on-year. In the remaining months of 2021 and early 2022, many banks offered preferential credit packages with low interest rates to support businesses and people affected by the Covid-19 pandemic.

Therefore, the credit is forecast to rise after the "dismal" period due to the public health crisis. Banks expect the credit growth limit   for 2022 will be higher and adjusted in line with market demand and the set target.

The State Bank of Vietnam plans to increase credit by about 14% in 2022 and adjust it consistent with the developments and actual situation. The Governor of the State Bank of Vietnam requested the entire banking sector implement solutions to control the rate of credit growth and focus on production and business sectors and fields under the Government's policy, supporting socio-economic recovery and development.

The banking sector is required not to loosen conditions for granting credit; continue to strictly control credit poured into potentially risky areas such as investment, real estate trading, securities, BOT projects, BT traffic, corporate bonds.