Tightening credit criteria: Difficult for banks

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The SBV set a credit growth target in parallel with credit quality control. Photo: Internet

Control the cash flow

Although lastyear was successful for the banking system, with profits of up to trillions of dong, targets for 2019 are cautious.

At Techcombank, the bank's shareholder meeting recently approved a 2019 pre-tax profit plan of VND11,750 billion, up only 10% from last year. While in 2018, the bank's pre-tax profit reached more than 10,600 billion VND, up 32.7% compared to 2017. Many medium-sized banks such as VPBank, MBBank and VIB also set lower profit targets, respectively, at 3%, 21%, 24%, while the profit achieved in 2018 corresponded to 13%, 27% and 162%.

Moreover, many big banks are also reserved in their growth target.Vietcombank only set a target to increase profit before tax in 2019 to about 12% to VND 20,000 billion, while the previous year, Vietcombank's consolidated pre-tax profit increased 62% and exceeded 38% of the plan.

Part of the above caution comes from the SBV tightening credit growth targets and capital safety regulations. According to the SBV, credit growth of the banking sector is expected to be around 14% for 2019. By the end of March 2019, the credit balance of the economy continued to increase by about 2.8% compared to the end of 2018. However, in terms of credit growth limit of each bank, the State Bank issued regulationsin which high priority is given to banks that have met Basel II standards. A leader of a commercial bank said that the credit criteria for banks that have not met Basel II standards are set by the State Bank at about 13%.

According to experts, this tightened control will help the banking sector to ensure credit quality, helping cash flow in the areas of production and business, priority capital areas in accordance with the Government's regulations; avoiding credit into risk areas, keeping bad debt at below 3% as prescribed. In addition, some experts said that the State Bank assigned credit growth targets for each bank based on financial situation, profits and bad debts of each bank, which helps to ensure safety for the whole system.

In the State Bank's press conference, SBV Deputy Governor Nguyen Thi Hong said that the central task of the banking sector in 2019 is to expand credit but ensure efficiency and safety. Therefore, the SBV has issued a dispatch to direct the credit growth orientation of the whole system and announced the credit growth target for each credit institution. However, the SBV will prioritize higher credit growth targets for banks that meet capital safety standards and meet Basel II standards.

Difficult for banks

At Techcombank's shareholder meeting, Mr. Ho Hung Anh, Techcombank's Chairman said that the State Bank has a policy to control credit growth, but the completion of Basel II of Techcombank has not been completed, so it is subject to adjustments. The growth plan is more cautious with the bank's ability. Also, on this issue, according to Nguyen Lan Huong, Deputy Head of Corporate Banking, Tien Phong Commercial Joint Stock Bank (TPBank), tightening credit growth on each bank is one of the problems. However, this is in line with the SBV's regulation on credit inflows.

In fact, in the last few years, banks have been continuously lending at the beginning of the year and by the end of the year, many banks have to apply for more credit. This leads to banks lending and worrying, or coping by adjusting the loan early next year. Therefore, many experts do not fully agree with this control by the State Bank because this shows both inequality and lack of ‘market rules’ in operating monetary policy. Economic expert Dr. Can Van Luc said that this is one of the SBV's operating tools to promote credit institutions to reach Basel II standards sooner, but this should only be a support solution within a certain period. The important thing is that the State Bank must have a more market-oriented mechanism and policies.

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According to experts, the State Bank should let banks themselves decide their operation, plans and growth based on their capabilities. According to Dr. Luc, the State Bank should consider applying the capital adequacy (CAR) requirements more strictly. With this approach, credit institutions will naturally adjust the credit growth rate to ensure safety for banks in particular and the whole system in general. In addition, the State Bank can strengthen inspection to detect cases in which the bank grows too fast, the money flows into potential risk areas, thereby the banks create corrective measures.

However, in the short term, the adjustment of the SBV's management cannot be easy.Therefore, banks have to be self-reliant, find ways to not rely on credit and still be able to provide capital for businesses. Nguyen Lan Huong said that banks should promote activities outside credit such as: guarantee, L/C financing, factoring,to reduce dependence on assigned credit targets. More specifically, according to Ms. Huong, in the business of enterprises, instead of disbursing immediately to pay for input materials, enterprises can use the bank's guarantee service. That is, banks only act as intermediaries, guarantee, ensuring the level of prestige in the commitment of enterprises to partners and customers. This helps the capital flow not flow out of the bank, but the bank only ensures the circulation of transactions of businesses together.