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Credit room extension given, but capital released in dribs and drabs

The State Bank of Vietnam (SBV) has given credit room extension to some commercial banks, paving the way for more money to be pumped into the economy. But capital is being released in dribs and drabs.

SBV on September 7 approved credit room extension after it had been urged to do this to clear the way for economic recovery. 

However, not all commercial banks got additional credit room. The central bank said that only 15 out of 30 banks which have healthy financial situations or who have taken the lead in implementing the government’s policies have been granted an additional 0.7-4 percent of the old credit growth limits.

The 15 banks are now allowed to lend several trillion to VND50 trillion dong in the last four months of the year.

Some bankers said that the figure is nothing if compared with the huge capital demand, which is especially high in the year-end business season, which means that they won’t be generous in providing loans. 

Though they have additional credit limits, they will only be able to disburse for loans which have been approved, and not all demand will be satisfied.

Meanwhile, the other banks, which have not been grant additional credit room, will not be able to give out more loans.

SBV has been consistent in its viewpoint that credit room must not be higher than 14 percent for the entire year. As such, it has been released in drive and drabs.

Some businesses told VietNamNet that they and banks are following procedures to disburse the loans, but these are mostly short-term loans, which were approved long ago and were postponed as banks did not have enough credit room at the time.

Meanwhile, businesses which apply for new loans will still have to wait. At the same time, commercial banks are having to disburse the 2 percent interest rate subsidy package.

“We are not eligible for the 2 percent interest rate subsidy package and we borrow capital at commercial interest rates, but we dare not hope that banks give us loans. If we are lucky enough to get loans, they will be small because of the low credit growth limits,” said Nguyen Hoang Son from Hung Ha Phat Company in Hanoi.

“The capital for year-end production season is really worrying,” he said.

One director of a bank said applications for loans have been piling up as demand for capital is very high: businesses need more working capital, while people need money to buy houses, so the credit limit will not be enough.

In principle, if banks can collect debts, they will be able to lend money. However, as businesses are facing difficulties and big inventories, debt collection has been going slowly, which affects the lending limits.

'Engine without gasoline’

According to SBV, as of the end of August, credit in the economy had increased by 9.91 percent in comparison with the end of 2021, a high growth rate compared with the same periods of previous years. 

However, as of June 30, credit in the economy had grown by 9.35 percent compared with the end of 2021. As such, credit grew by only 0.56 percent in the last two months.

The Board for Private Economic Development Research (Board IV), belonging to the Prime Minister's Advisory Council for Administrative Procedure Reform, has reported that discussions with 16 organizations and associations in August found that most businesses are still facing financial difficulties. They lack working capital and find it difficult to access bank loans.

Small and medium enterprises (SMEs) and business households account for 95 percent of total enterprises. If credit is not provided, some may go bankrupt as they don’t have enough money to pay to workers, to do business or make new investments.

The economy with lack of capital is likened to an "engine without gasoline". 

The tightening of the money supply is pushing interest rates up and causing businesses a lack of capital, affecting economic recovery.

Analysts say that the situation is getting more stressful and the economy will suffer.

Some of them have recently called on the State Bank to remove the credit growth limit scheme, saying that it has become out of date and caused big problems. 

Because of the lack of capital, production and business have become stagnant. Meanwhile, the credit limit creates an unfair ‘ask-and-grant’ scheme for commercial banks.

Many countries no longer use credit room to control the money supply, but use more flexible tools, such as compulsory reserve requirements and trade of valuable papers between central banks and credit institutions. 

These are market-based tools, which are effective in preventing banks from opening the "credit valve" too much.

Analysts also pointed out that the current inflation rate is caused by push cost, not by monetary factors. Therefore, to control inflation, it is necessary to use fiscal policy rather than monetary policy.

Tran Thuy

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