The credit growth of Vietnamese banks in the first five months of this year expanded by 5.07 per cent against the end of 2018, the State Bank of Vietnam (SBV) reported.

The credit growth in the first five months of 2019 was lower than that of
the same period last year, when the credit rose by 6.16 per cent. VNA/VNS Photo

The rise was lower than that of the same period last year, when the credit rose by 6.16 per cent.

Despite the moderation of credit growth, experts are not concerned about the slowdown, saying it was even a good sign for the economy.

Can Van Luc, chief economist of the Bank for Investment and Development of Vietnam (BIDV), said he was not surprised at the moderate credit growth, explaining the SBV had targeted controlling credit growth since the beginning of this year to curb inflation and stabilise the macro-economy.

According to Luc, local firms are no longer too dependent on bank loans as they could raise capital from the securities and bond markets. The domestic market has also witnessed new capital supply channels, such as fintech and peer-to-peer companies.

As a result Luc said moderate credit growth was a good sign for the economy.

In addition, restructuring of bank loans had improved, he said, explaining that bank loans were pouring into the production and business sectors, which were key drivers for the country’s economic growth.

Moody’s Investor Services also hailed the moderate credit growth, saying it was positive for banks' asset quality and capitalisation.

According to Moody’s, tighter credit could lead to rising problem loan ratios, reflecting the seasoning of banks’ loan portfolios. However, lower credit growth encouraged banks to focus on borrowers of better quality, which would improve asset quality in the long term.

Moderate credit growth would also lower pressure on capital, especially for State-owned banks, the rating agency said.

In the first five months of the year, lending rates averaged 6 to 9 per cent per year for short-term loans and 9 to 11 per cent per year for medium- and long-term loans.

In the May macroeconomic report released last week, analysts from Bao Viet Securities Company (BVSC) forecast it would be difficult for banks to cut lending rates next month due to risks of high inflation and impacts from the US-China trade conflict.

Inflation was still under the Government’s control, but the risk to high inflation might come due to impacts from pork price hikes, BVSC analysts said, explaining the supply of the commodity was declining due to the spread of African swine fever and it would have a strong impact on the commodity’s price in the next two or three quarters.

In addition, the analysts said, the upward trend of core inflation was also quite clear, not creating favourable conditions for the SBV to loosen monetary policy.

“In the context of increasing inflation and risks to the financial market in the wake of the escalation of the US-China trade conflict, interest rates are forecast to have no chance to decrease in the future,” BVSC analysts noted.