If Vietnam continues maintaining the high credit growth rate of 15.6 percent per annum in the upcoming years, while the nominal GDP grows by 10.2 percent as seen in recent years, the ratio of credit to GDP may reach 200 percent in 10 years, the highest level in the world, according to Nguyen Duc Do, a lecturer of the Finance Academy.

Commenting about credit growth policy, Do said the government should not strive for credit growth at any cost. 

He cited a report of the World Bank as showing that credit for the private economic sector in 2017 was 130 percent GDP. Meanwhile, the State Bank of Vietnam (SBV) reported that by the end of 2017, credit had grown by 18.17 percent and mobilized capital by 14.5 percent.

Though the credit growth rate was higher than mobilized capital growth rate, the liquidity of the banking system was still strong.

In theory, high credit growth rate means big capital for the national economy. However, the more important factor lies in the efficiency of capital use. 

An analyst, agreeing with Do, said that high lending may bring some certain risks. When the ratio of credit to GDP is high, the stability of the financial system in particular and the national economy in general will become more ‘sensitive’ to interest rate fluctuations. 

Any minor increase in interest rate will lead to a significant increase in the interest borrowers have to pay and the decline of the economy’s sustainability.

He said that a high ratio of credit to GDP does not always mean that the production sector can receive more capital. The capital may flow to other business fields such as securities and real estate which would lead to a property bubble.

Do warned that Vietnam’s ratio of credit to GDP has nearly hit the level of OECD countries, and if the ratio continues rising, the risks related to interest rates, bad debts and property bubbles will be increasing.

He urged the government to adjust the targeted credit growth rates. If the government wants the GDP growth rate at 6.5-7 percent and the inflation rate at below 4 percent, the ratio of credit to GDP should be 10-11 percent, or equal the nominal GDP growth rate.

Luu Anh Nguyet from the Ministry of Finance commented that one of the reasons behind the high credit growth rate is the policy on reducing interest rates that Vietnam has pursued in recent years. However, the policy did not bring the desired effects.

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