On September 16, 2022, the State Bank of Vietnam (SBV) organized a meeting on the credit management under the chair of SBV Governor Nguyen Thi Hong in order to receive feedbacks and comments on the credit management this year and in 2023. The comments were made in the principles of publicity, transparency, frankness, and aimed to achieve the objective of effective credit management, contributing to maintaining the macro-economic stability, supporting the economic growth, and ensuring prudent banking system in the context of high inflation, hiking interest rates, and geo-political tensions around the world, which have taken a toll on the global economy.
Governor Nguyen Thi Hong chairs the Meeting
Maintaining the macro-economic stability and controlling the inflation are the key and long-term objectives
In her opening speech, Governor Nguyen Thi Hong assessed that the world economic situations have recently experienced many complicated and unpredictable developments, which has negatively affected Vietnam’s economy. Therefore, with its role in managing the monetary policy, contributing to controlling the inflation, maintaining the macro-economic stability and supporting the economic growth, the SBV is not allowed to be negligent about the developments of the inflation, and should not only focus on controlling the inflation for this year, but also for the following years. This is a consistent and long-term objective.
Ever since 2020, Vietnam’s economy has frequently suffered adverse fluctuations, affecting significantly the banking operations. The pressures of high inflation rates have forced many central banks around the world to accelerate the tightening of their monetary policies, and raising the key interest rates, causing big challenges for the SBV’s monetary policy and credit management.
At a Conference on maintaining the macro-economic stability, controlling the inflation, promoting the economic growth, and ensuring the macro balances, which was organized on September 12 under the co-chairmanship of Prime Minister Pham Minh Chinh and Deputy Prime Minister Le Minh Khai, representatives from the international institutions like the IMF, the WB, the ADB,… and economists made high evaluation for the SBV’s management in controlling the inflation and maintaining the macro-economic stability. Accordingly, the IMF representative said that increasing the credit ceiling to support economic growth could reduce the effectiveness of the monetary policies and instruments which the SBV has conducted over the recent time.
In that context, credit from banking sector is only one of the management measures that the SBV has conducted in a proactive and flexible manner in close collaboration with other instruments in order to ensure the achievement of the key objectives of maintaining the stability of the system, controlling the inflation, and maintaining the macro balances.
About the credit management in 2022, Ms. Ha Thu Giang, Deputy Director General in charge of the Department of Credit for Economic Sectors, shared that in the eight months of 2022, the SBV had directed the credit institutions to focus credit on production and business activities and priority areas, supporting the socio-economic recovery. As a result, credit for all sectors had increased right from the beginning of 2022, with a higher level than that of the same period of 2021 or 2020. In the coming time, the SBV would continue to direct the credit institutions to focus their credit on production and business activities, priority areas as directed by the Government, with reasonable interest rates to ensure the loan safety, support the socio-economic growth; continue to closely control the credit risks in potentially risky fields in order to ensure a prudent banking system; balance their capital in order to provide loans to well-performing projects on production and business, especially the sectors and areas subject to the interest rate support package in line with Decree 31; effectively implement the measures to support and remove the difficulties for customers as directed by the SBV; and implement the credit policy programs as directed by the Government,…
SBV’s credit management has been conducted in an appropriate and consistent manner
At the Meeting, representatives of the credit institutions assessed that the SBV’s credit management in the recent months has been appropriate; the participants all agreed that the tool of credit limits cannot be removed at this time, and the targeted credit growth ratio of 14% for 2022 is appropriate in the context of the post-COVID recovery, and this ratio is already higher than that of the previous year. In addition, it is necessary to have different allocated limits based on the performance of each credit institution; and this information should be sent privately to each individual credit institution, since this rank-based allocation, if disclosed to the public, could affect the fair competition among the credit institutions. Many participants also stated that if the credit growth ratio were high, it would lead to the risk of an interest rate race among the credit institutions, affecting the safety of the banking system. The representatives of the credit institutions also recommended that the Government initiates effective solutions to develop and attract more medium and long-term capital resources from different channels, such as bonds, securities, as well as to attract more foreign investment... so that the burden of medium and long term capital would not be placed on the banking sector only.
Speaking at the Meeting, Mrs. Le Thi Thuy Sen, Director General of the SBV’s Communication Department, shared that the credit limits have been a topic of great interest of the business community and the media over the past few months. Most of the public opinions have expressed high evaluation for the credit management of the SBV; however, there have been some comments that the delay in loosening the credit room would make Vietnam miss the opportunity for accelerating the economic growth, or the credit limits should be eliminated because it is an obsolete administrative measure, or credit control would constrain the economic recovery, etc.
However, the international organizations have strongly recommended that Vietnam and the SBV continue to control the credit limits. Recently, the WB, the IMF, and several global credit rating agencies have all warned about Vietnam's credit-to-GDP ratio, and the high ratio of total assets of domestic banks to GDP. Moody's has recently raised Vietnam's national credit rating from Ba3 to Ba2, but continued to warn about these ratios, which are among the highest in the countries rated Ba and Baa.
Economists have also assessed that the rating as guided by Circular 52 is transparent and fair, ensuring a healthy competition among the credit institutions and a prudent banking system, as well as controlling the inflation and protecting the economic growth, while still ensuring the harmony among different objectives.
Representatives of the credit institutions at the Meeting
Consensus on common objectives of inflation control, economic recovery and banking system safety
Toward the end of the Meeting, Governor Nguyen Thi Hong asserted that the feedbacks and comments raised by the credit institutions and the SBV entities, through the two-way exchanges at the Meeting, had all agreed on the assessment that the economy has been going through various difficulties, and the banking system has been facing with big pressures. The participants in the Meeting all agreed that the credit limit tool is useful and appropriate in the context of Vietnam, and it can contribute greatly to maintaining the economic stability. Although it is not possible to meet all the requirements and expectations of the credit institutions, all of the participants reached a consensus on the common objectives, for the country, for the banking industry, and for each member of the credit institution system.
For the rating criteria to determine the annual credit limit ratios, all of the credit institutions agreed to follow the rating guidelines in Circular 52. In addition, the credit institutions also proposed to take into account the priority fields when considering the 2023 credit framework; most of the participants shared the opinion that credit is only one of the capital channels, and cannot meet all of the capital needs of the economy. For the long term, it is recommended that Vietnam need to develop and promote other investment channels, such as securities, bonds, public investment, as well as to attract more foreign capital.
The SBV Governor also requested the credit institutions to focus on their communication and information dissemination, considering it to be a key task of the whole banking industry. The SBV Communication Department shall take the lead in improving the public understanding about the monetary policy management in general and the credit management in particular. Regarding the participants’ recommendations on developing criteria for considering the credit limit allocation, the means of allocation, etc., the SBV Governor requested the SBV relevant entities to consider, analyze, and thoroughly assess the feasibility of those recommendations in order to improve the tool of credit limits within the credit management in 2023.
Le Hang