How is post-Covid-19 credit growth?

	COVID-19 woes to weigh on credit growth even with lower interest rates
	Bank credit growth recovers partly in March

The banking industry is actively deploying preferential credit packages. Photo: Internet

Credit boom at the end of the year?

The outbreak of the Covid-19 pandemic has affected many fields of production and business, and delayed operation of enterprises, which was the main cause of the decline in credit demand.

As of April 2020, banks in Vietnam have reported that up to VND2 million of outstanding loans (23% of the system's total credit) are affected by the pandemic and need to apply restructuring, reduction or exemption of interest. Therefore, to support the economy, businesses and individuals affected by the pandemic, banks have provided credit packages of up to VND600,000 billion, with interest rates falling from 0.5- 4% per year.

Thereby, according to the State Bank of Vietnam (SBV), as of April 28, 2020, credit increased by 1.32% compared to the end of 2019. Thus, after the decline from 1.3%at the end of March to 0.87% in the first half of April, credit in the second half of April has increased positively.

With this result, the SBV expects that the credit in 2020 will provide the economy with about VND900 billionto VND1.1 trillion, equivalent to about 11-14%. Despite the slow increase in the first four months, according to experts of VNDirect Securities Company, this is a big improvement compared to the 0.06% increase at the end of February 2020.

Government policies to support the economy, such as interest rate reduction, tax deferral periods, and applying lower interest rates for businesses affected by the pandemic, have helped credit increase positively.Therefore, with the scenario that the Covid-19 pandemicis controlled in the second quarter, VNDirect experts said credit would increase again in the third and fourth quarters, andthe credit growth was expected to reach 11% in 2020.

Financial - banking expert, PhD. Can Van Luc stated credit growth would be lower than the same period in previous years, about 9-11% for the whole year.

However, looking at the results of previous years, specifically, it was 14.4%in 2014, more than 18% in 2015-2017, 14% in 2018 and 13% in 2019, these credit growth rates were not as bad as many worries raised when the disease started.

Moreover, this result is achievable because credit often increases slowly in the first months, and then increases sharply in the last months of the year when the demand for loans of businesses goes upsignificantly.

Great difficulties

Talking about the reason for credit growth after controlling the Covid-19 pandemic, VNDirect's analysis said there were many factors supporting credit growth after the pandemic. Notably, executive interest rates and interest rate ceilings are getting lower, facilitating banks to reduce input costs and apply lower lending rates.

Specifically, in March 2020, the SBV promptly reduced sharply 0.5-1% of the executive interest rates. Therefore, by April 2020, more than 20 banks (accounting for 75% of the system's credit) increased the size of low-interest credit packages to support customers affected by the pandemic.This will encourage businesses and people to borrow new capital to continue and recovertheir production and business activities after the pandemic.In addition, another important factor supporting credit growth is the promotion of public investment, which will create jobs for both businesses and workers, leading to new credit needs and partly strengthening credit growth.

However, businesses have faced many difficulties, especially as the pandemic is complicated worldwide, disrupting the global supply chain.In addition, 2020 is also the year that banks must tighten their finances to meet the operational safety ratios of the banking system, so credit growth should depend on asset quality as well as the level of operational safety requirements.Banks which do not meet the Basel II standards will have to maintain capital adequacy ratios and find ways to meet their own capital.

Besides, the business results of some banks in the first quarter showed that negative credit growth was also a concern.Typically, at VietinBank, customer loans decreased by 1.25%; at MB, customer loans stood at nearly VND248 trillion, down 0.94%; and at Saigonbank, lending activities also decreased by 2.3% compared to the beginning of the year. According to experts, the low growth rate of credit showed that the lending cash flow was “stuck”,because businesses have faced difficulties, and banks must also be more cautious in disbursing to limit credit risk in the future.

In fact, along with the low growth credit, first quarter financial statements of banks also showed that bad debt has increased. Therefore, after the pandemic, credit may increase again but bad debt can only be resolved quickly if banks are prudent in lending, debt ranking and provision.When the worry of bad debt is clinging to banks, the "release" of loans is limited in the context that business activities contain many risks of capital recovery.