Bank credit growth in Vietnam is projected to grow at only 12% this year, a decline from the 14.5% growth recorded in the previous year.
The slow economic activity and a sluggish property sector, which is usually the biggest borrower, are some of the reasons for the projected slowdown in credit growth. This is according to a report by VnExpress.
Small and medium-sized businesses, such as Ninh’s cargo transport firm, are among the hardest hit by the high lending interest rates, with some companies recording up to a 50% decline in their operations in the last two years. Many companies are now finding it challenging to be profitable at the current lending interest rates, which average at around 10-12%. This has led to a reduction in borrowing from banks, with some companies being forced to sell off assets to reduce debts.
Individuals are also experiencing challenges with the high-interest rates. According to Thanh Tung, a credit officer at a leading private bank in Hanoi, many people are reluctant to borrow after discovering that interest rates are currently 13-14% and even higher in some cases.
Furthermore, the dormant property market is not helping matters, with real estate-related credit outstanding rising by 24% from a year earlier. However, banks are finding it difficult to disburse loans to real estate businesses due to many of them having problems with the legal status of their projects, as well as being indebted to their customers and bondholders.
As a result, credit demand is forecasted to be low this year, with the banking system’s outstanding credit expected to grow by only 4% during the first quarter of this year, a year-on-year fall of nearly 2 percentage points. According to VNDirect Securities Corporation, credit growth is expected to slow down to around 12% this year, due to the weak real estate market, decelerating export growth and high interest rates.
However, the interest rate issue could be somewhat resolved by the end of this year. The CEO of a private bank said that they expect deposit interest rates to plateau and then decrease from now through the end of the second quarter. The bank is also considering a plan to reduce deposit interest rates. This could lead to a reduction in lending rates by some banks, as banks compete to attract new customers.
In conclusion, the decline in credit growth in Vietnam is expected to persist due to a variety of factors such as the sluggish economy, the dormant property market, and the high-interest rates. The challenges faced by small and medium-sized businesses and individuals also contribute to the decline.
However, with the expected decrease in deposit interest rates, there is hope that the lending interest rates will also decrease. This, coupled with increased competition between banks, could lead to a reduction in lending rates and an upturn in credit growth in the coming months.