return icon

Ceiling credit growth rate needs to be removed: economist

According to former deputy director of the Banking Strategy Institute Pham Xuan Hoe, while demand for capital is very high, the credit growth limit has been controlled too strictly, which has put a brake on the economic recovery process.

You are one of the experts asking to remove the credit limit mechanism. What are your arguments?

The State Bank of Vietnam (SBV) began using the tool of credit growth limit in 2011, when the government then issued Resolution 11 on curbing inflation. In 2007-2011, credit grew by 33 percent per annum, and even 53 percent in 2007, which triggered a high inflation rate of 19 percent in 2011.

But after one decade, Vietnam has been controlling inflation and stabilizing the macro economy. In 2020-2021, bearing the impact from Covid-19, the GDP growth rate was just over 2 percent, while the business nearly became stagnant, but the credit still grew by 12 percent and high inflation did not occur. 

High inflation did not occur in the first eight months of the year. In other words, pressure by the monetary policy on inflation is not too tough.

More than 10 years ago, the tool of credit growth limit was used because of hot development which led to high inflation. But now we don’t have real estate and securities bubbles.

Meanwhile, demand for capital is very high from businesses and people. In such conditions, strict control over credit growth will put a brake on efforts to recover the economy. Therefore, I believe that it is necessary to remove the credit growth rate limit.

Why do you think it is necessary to remove the limit when the watchdog agency always fears that commercial banks will neglect capital adequacy standards?

The Prime Minister’s Decision 986/QD-TTg has instructed to remove credit limit to use more market tools to implement a strategy on developing a modern central bank.

Moreover, over many years, the central bank has been applying Basel II for commercial banks. To date, nearly 20 banks can meet the standards. The banks control the lending rate based on the mobilized capital in the tier-1 market, which means that they only lend 80 percent of the capital they mobilize from businesses and individuals.

This is a barrier to prevent high credit growth if commercial banks cannot mobilize capital from the economy. Meanwhile, SBV hasn't pumped more capital into circulation, which means that money supply won’t be too high to raise concerns about inflation.

Also according to Basel II, under Circular 41/TT-NHNN, credit institutions must maintain CAR (capital adequacy ratio) to control  lending to high-risk fields when lending by the risk conversion factor. For example, in the real estate sector, the factor applied by SBV is up to 200 percent.

This means that when banks want to provide loans to risky business fields, they have to increase their core capital to satisfy requirements on CAR. So, in order to increase lending to risky fields, they have to increase their core capital or they will be punished. This shows that using the tool of credit growth limit is no longer significant.

Are there any other reasons?

There are many other tools which can replace the credit growth limit to control the credit provided.

SBV, for instance, can use the required reversed ratio and raise the ratio to 5 percent or even 10 percent if it sees the risk of commercial banks expanding credit, which could lead to a shocking rise in money supply (M2).

When raising the required reverse ratio, this means that locking money at credit institutions’ accounts at SBV, causing banks to considerably reduce their capital sources which allow them to increase lending to the economy.

Moreover, through OMO (open market operation), SBV can also launch a kind of bill which commercial banks must buy, possibly with supportive interest rates.

This is a tool which is both market and administrative oriented and is strong and effective if SBV wants to ‘lock’ money of commercial banks to prevent them from expanding credit.

Some commercial banks complain that maintaining the credit growth limit means maintaining the ask-and-grant mechanism with risks for both managers. What do you think? 

It’s true. Credit limit is an administrative tool which generates the ask-and-grant mechanism and an unfair environment for commercial banks.

The capital needed for business recovery needs is very large. Many customers are seeing their production recovery stall because banks are running out of credit room.

Tu Giang


President to pay State visit to RoK next week

President Nguyen Xuan Phuc and his spouse will pay a state visit to the Republic of Korea from December 4-6.

Fansipan among five top destinations for mountain trekking at year-end

Renowned tourism website Women's Weekly of Singapore has named Fansipan among the leading five destinations to visit for mountain trekking at the end of the year, with the website noting the Vietnamese mountain’s impressive views.

Dortmund chiefs predict bright future for VN football

Although this was only a friendly game with many of the German stars absent from the starting eleven due to the Qatar World Cup, the victory gave the Bundesliga team food for thought about Vietnamese players.

International designers dazzle fashion fans in Hanoi

International designers left a deep impression on fans of fashion in Hanoi with hundreds of fascinating designs presented at the Aquafina VN International Fashion Week (AVIFW) Fall/Winter 2022.

Monthly Government meeting focuses on year-end key tasks

The Government has established working groups on liquidity and currency, the real estate market and corporate bonds led by deputy prime ministers to stabilise these markets.

Vietnam to reduce environmental impact of textile-garment industry by 2030

The Vietnam Textile and Apparel Association (VITAS) has set a goal of helping Vietnam's textile and garment industry be more environmentally friendly by 2030.

Property brokers no longer manipulate prices as buyers become more cautious

As buyers have become more aware and careful about shady practices, real estate brokers have not been able to sell properties at prices much higher than their real value.

Hanoi to turn middle alluvium ground into park

One more park has been designed for Hanoians. However, it is still unclear when the project will appear, as a number of other projects are still on paper or pending.

Asian investors eye more M&A opportunities in Vietnam

Investors from Japan, the Republic of Korea (RoK), and Singapore are looking for more potential merger and acquisition (M&A) opportunities in Vietnam, pinning high hopes on the long-term growth prospects of the market.

Vietnam's fishery exports exceed 10 billion USD in 11 months

Fishery exports reeled in 10.14 billion USD as of November this year, up 27% annually, said the Ministry of Agriculture and Rural Development.

HCM City want foreign doctors to be fluent in Vietnamese

The HCM City Department of Health has just proposed that foreign doctors should be fluent in Vietnamese if they want to work in the country.

Use of toxic e-cigarettes among students on the rise

After a trial smoke, T lost consciousness, was foaming at the mouth, and his limbs were curled up. Two days later, T regained consciousness at the hospital, but was still in the status of extreme fear.

Vietnam spends US$7.74 billion importing petroleum products

Vietnam imported over 7.5 million tonnes of oil and petrol worth around US$7.74 billion as of mid-November, up 24.1% in volume and 122% in value year on year, according to the General Department of Vietnam Customs.

Vietnam won’t sacrifice the environment for economic growth: Prime Minister

Vietnam takes people as the goal in development. People will enjoy the fruits of a green economy and the government will not sacrifice the environment to pursue economic growth.

Vietnam’s bond market contracts amid monetary tightening

After strong growth in the previous quarter, Vietnam’s currency bond market contracted 0.2% due to a decline in the Government bond market and slower growth in corporate bonds.