Vietnam's credit growth to stabilise, inflation to be elevated In 2020: Fitch Solutions

Vietnam’s 2019 credit growth came in at just 12.1%, underperforming the State Bank of Vietnam (SBV)’s 14.0% target for the year. This marked a second year of deceleration since credit growth peaked at 18.2% in 2017.

According to Fitch Solutions, this was likely due to self-imposed capital constraints faced by banks as they transition to the Basel II standards. Given that major lenders in Vietnam have already transitioned or are on track to fulfil the Basel II requirements in 2020, credit growth is expected to stabilise at 12.5% in 2020.

Monetary easing by the SBV at the end of 2019 will also aid credit growth during 2020. While the SBV is unlikely to ease interest rates further over 2020, as it turns its focus towards managing high inflation, alternative measures of targeted monetary easing could still be on the cards.

Vietnam's credit growth to stabilise, inflation to be elevated In 2020: Fitch Solutions

Compliance with Basel II requires banks to meet minimum capital requirements, undergo the supervisory review process, and maintain market discipline, aimed at enhancing competition and transparency in the banking system.

As part of the minimum capital requirements, banks are to have a minimum capital adequacy ratio of 8.0%. According to a Vietnam News report on December 30 2019, only 16 out of 38 local banks in Vietnam had met the Basel II standard.

However, Fitch Solutions notes that two out of the 16, namely Vietcombank and BIDV, are among Vietnam’s big five largest lenders.

Among the remaining three, it was reported that Vietinbank and Agribank, are on track to meet the Basel II capital requirements in 2020, while Saigon Commercial Bank (‘Sacombank’) was reportedly ready to apply for Basel II in mid-December 2019.

Given that the big five lenders in Vietnam account for 48% of total assets in the banking sector, we believe that their meeting of Basel II capital requirements will halt the two-year deceleration in credit growth over 2020.

A stabilisation of credit growth will reduce pressure on the central bank to deliver any broad-based monetary easing through its benchmark policy rates to strengthen economic growth and instead allow it to focus on managing inflation. Accordingly, Fitch Solutions forecast Vietnam’s benchmark refinancing rate to remain at 6.00% through 2020. Inflation surged to 5.2% y-o-y in December 2019, from 3.5% y-o-y in November 2019 and 2.2% y-o-y in October 2019, on the back of surging food inflation (40% of the inflation basket). Food inflation almost doubled to 9.2% y-o-y in December 2019, from 5.6% y-o-y in November 2019, on the back of rocketing pork prices due to the outbreak of African Swine Fever, which has affected all 63 provinces in Vietnam.

 
Vietnam's credit growth to stabilise, inflation to be elevated In 2020: Fitch Solutions

The spike in food inflation implies that the shortage in pork supply has begun to grip the country following months of excess pork supply due to panic slaughtering of the herd, which has the effect of depressing prices.The existing pork supply shortage is likely to persist over 2020, and this would also put upside pressure on the prices of other animal protein.

Moreover, Fitch Solutions forecast that moderate transport inflation (as opposed to deflation over most of 2019) over the coming year informed by its Oil and Gas team’s forecast for Brent oil prices to average USD65.00/bbl in 2020, up from USD64.00/bbl in 2019.

Core inflation also spiked in December 2019 to 2.8% y-o-y, from 2.2% y-o-y in November 2019. Accordingly, Fitch Solutions is revising its 2020 average inflation forecast to 5.7%, up from 3.5% previously, which on top of reflecting view for elevated inflation to persist, also reflects expectation for inflation to overshoot the SBV’s 4.0% limit, limiting scope for monetary easing.

That said, Fitch Solutions still sees scope for the SBV to adopt targeted loosening measures to boost growth of its priority sectors, given slowing growth in the export manufacturing sector, which it believes to be due to infrastructure and human capital constraints.

Risks to its view are towards monetary tightening and slower credit growth. While the latest stance by the SBV as of December 2019 was for monetary easing to support growth, surging inflationary pressures could see it alter its stance to instead focus on curbing excessive inflation.

This could see the central bank tighten policy either broadly through its benchmark interest rates, or through sector-specific measures. Higher interest rates could see credit growth continue to decelerate, given also rising operating costs due to a shortage of adequately skilled labour, which reduce the profitability of new business undertakings.

Hoai An

 
 

Other News

.
Banks struggle to raise capital amid Covid-19
Banks struggle to raise capital amid Covid-19
BUSINESSicon  07/08/2020 

In light of the unpredictable developments relating to the Covid-19 pandemic, many banks in Vietnam are attempting to raise capital but most of their plans have been delayed,

Southeast Asian companies to accelerate IPO plans
Southeast Asian companies to accelerate IPO plans
BUSINESSicon  07/08/2020 

Southeast Asian tech and consumer durables companies are mulling over applying for IPO in 2020 while startups in Vietnam are looking at choppy waters.

VN central bank cuts reserve interest rate to aid the economy
VN central bank cuts reserve interest rate to aid the economy
BUSINESSicon  07/08/2020 

The interest rate of compulsory reserves in the Vietnamese dong at banks will be 0.5 per cent per annum.

Record high gold prices see citizens keen to cash in
Record high gold prices see citizens keen to cash in
BUSINESSicon  07/08/2020 

Masses of people nationwide have been flocking to jewellery shops in order to sell the precious metal to cash in on the increasing trend of gold prices reaching an all-time high of VND62 million per tael.

Gold prices go up, VN central bank commits to stabilise market
Gold prices go up, VN central bank commits to stabilise market
BUSINESSicon  07/08/2020 

Prices of the yellow metal soared a new record reaching VND62million(US$2,681) per tatel or 1.2 ounce in Vietnam on Thursday after the State Bank of Viet Nam (SBV) confirmed to have solutions and sufficient resources to stabilise the market.

Ministry leaders discuss action plan to implement EVFTA
Ministry leaders discuss action plan to implement EVFTA
BUSINESSicon  07/08/2020 

Vietnamese enterprises have been urged to renovate their business strategies if they want to benefit from the EU-Viet Nam Free Trade Agreement (EVFTA), 

Top 10 most valuable brands worth US$8.1 billion
Top 10 most valuable brands worth US$8.1 billion
BUSINESSicon  07/08/2020 

The top 10 most valuable brands in Viet Nam 2020 are worth US$8.1 billion, increasing by 17 per cent from last year and accounting for 30 per cent of the list’s total value, according to Forbes Viet Nam magazine.

ASEAN’s investment contributes significantlly to Vietnam’s economic development
ASEAN’s investment contributes significantlly to Vietnam’s economic development
BUSINESSicon  07/08/2020 

Since Vietnam joined ASEAN (July 28, 1995) and committed to the implementation of the ASEAN Free Trade Agreement (AFTA) in 1996, ASEAN's direct investment has contributed significantly to Vietnam’s economic development .

Vietnam Airlines plans to sell nine planes due to financial woes
Vietnam Airlines plans to sell nine planes due to financial woes
BUSINESSicon  06/08/2020 

Vietnam Airlines is planning to sell nine A321CEO planes to optimize its fleet and improve its cash flow, as the national flag carrier’s revenue has dropped sharply due to the Covid-19 pandemic.

Vietnam – one of the best long-term growth stories in Asia
Vietnam – one of the best long-term growth stories in Asia
BUSINESSicon  07/08/2020 

Vietnam is one of the best long-term growth stories in Asia and is one of the most preferred frontier markets, according to HSBC.

Maximum $130,700 fine for listing violations: Draft decree
Maximum $130,700 fine for listing violations: Draft decree
BUSINESSicon  06/08/2020 

Public companies may receive a penalty of VND2-3 billion ($87,120-$130,700) for falsifying share listing and trading documents under a proposal from the Ministry of Finance.

Singaporean business surges ahead
Singaporean business surges ahead
BUSINESSicon  07/08/2020 

Singaporean business and investment in Vietnam has increased significantly over the decades, thus greatly contributing to strengthening economic bilateral ties.

Furthering developmental ties with dynamic Singapore
Furthering developmental ties with dynamic Singapore
BUSINESSicon  06/08/2020 

Vietnam and Singapore are witnessing their heyday in bilateral and multifaceted cooperation.

Wide impacts to be made with new law changes
Wide impacts to be made with new law changes
BUSINESSicon  06/08/2020 

Effective in 2021, the amended laws on Enterprises, Investment, and Public-Private Partnership are expected to entail breakthrough changes to Vietnam’s business and investment landscape in the coming time, 

Decisive actions to achieve goals
Decisive actions to achieve goals
BUSINESSicon  06/08/2020 

The Ministry of Planning and Investment is currently working on possible scenarios for the upcoming period amid the ongoing developments of the global health crisis.

Millenium to develop $15 billion LNG project in Khanh Hoa
Millenium to develop $15 billion LNG project in Khanh Hoa
BUSINESSicon  06/08/2020 

If the $15 billion LNG project of Millenium Group is approved, it will contribute to making the Nam Van Phong area the largest LNG centre in Southeast Asia.

Rebound likely despite bumpy roads
Rebound likely despite bumpy roads
BUSINESSicon  06/08/2020 

Despite a serious dip in local production caused by the health crisis, Vietnam is expected to be one of the fastest-growing nations worldwide this year, with the economy forecast to stay among the few nations with positive growth.

Unique advantages can pull Vietnam out of uncertainty
Unique advantages can pull Vietnam out of uncertainty
BUSINESSicon  06/08/2020 

In life, economic and health gains are not always equal. This is true for individuals and for countries. While Vietnam has managed to contain the pandemic so far, its economy has been hurt in recent months. 

Hanoi’s Old Quarter businesses bear brunt of COVID-19 impact
Hanoi’s Old Quarter businesses bear brunt of COVID-19 impact
BUSINESSicon  06/08/2020 

The second wave of the COVID-19 epidemic to hit Vietnam has continued to deal a devastating blow to small businesses, travel agencies, and tourist accommodations in the Old Quarter of Hanoi due to the suspension of operations.

Container handling charge increases proposed to attract investment in seaports
Container handling charge increases proposed to attract investment in seaports
BUSINESSicon  06/08/2020 

Container loading and unloading service charges should be increased to approach the regional level so investors would not feel hesitant when pouring money into developing seaports.

 
 
 
Leave your comment on an article

OR QUICK LOGIN