|The State Bank of Vietnam (Photo: cafef.vn)
Bao Viet Securities Company said in a report on the prospects of the banking sector that credit growth in the next three to five years would be around 14 percent a year, lower than the average rate of 18.1 percent in the 2015-17 period.
It said the lower credit growth would be due to a decline in both funds supply and demand.
With respect to the demand, economic growth next year is projected to slow down slightly to 6.4-6.5 percent, reducing demand from companies for funds to expand production and business.
The expected interest rate hikes of 0.25-0.5 percentage points in 2019 would also have an impact, BVSC analysts said.
Another factor will be the State Bank of Vietnam’s new regulations on increasing the risk weightage for real estate loans from the current 200 percent to 250 percent from next year. It means that for every dong of real estate loan given, the risk-weighted assets will increase by two and a half dong. This will make it a significant disincentive for banks to lend to the property sector since their minimum capital requirement is a ratio of their risk-weighted assets under the Basel norms.
Another new central bank regulation reducing the maximum quantum of short-term deposits that can be used for medium- and long-term loans from the current 45 percent to 40 percent next year will reduce banks’ liquidity.
Experts in different sectors have pointed out that after several years of high credit growth of over 18 per cent many banks are showing signs of slowing down lending since the last months of 2018.
The country’s credit to GDP ratio now stands at 130 percent, causing the central bank to keep a close eye on credit.
Various external factors have forced the central bank to tighten monetary policy, experts said.
They include the escalating trade war between the US and China, whose likely effect on inflation is unknown yet. Global fuel prices rose steadily earlier this year, bringing inflationary pressure.
When there is fear of inflation, one of the main weapons central banks deploy is tight money.
Dr. Nguyen Dinh Cung, Director of the Central Institute of Economic Management Research, said: “The State Bank of Vietnam has regulated/ has been carefully regulating credit policies to ease inflationary pressure and enable the country to cope with the risks of an economic slowdown.”