Ktetaichinh’s Blog

January 2, 2010

Credit target points to credibility gap

Filed under: Uncategorized — ktetaichinh @ 5:23 pm
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When the State Bank announced a 30 per cent credit growth target for 2009, some banking experts thought back to 2007.

In 2007, the authority also set a 30 per cent credit growth target, which in reality turned out to be 52 per cent. The same scenario happened in 2009 as credit expansion finally reached 37.73 per cent.

While central banks worldwide normally set inflation controls or nominal gross domestic product (GDP) growth as a prime target, the State Bank normally sets credit growth as a major target. Its 2010 target is 25 per cent.

A financial expert said the target and ultimate result normally reflect a central bank’s credibility to bankers and business community. The State Bank said runaway credit growth in 2009 was due to the stimulus package via a bank lending rate subsidy. By December 10, 2009, total bank loans extended through this package amounted to VND445 trillion ($24 billion).

Nguyen Thi Mui, a member of the National Monetary Policy Consulting Board, said by setting a lower credit growth target in 2010 than previous three years, the State Bank showed its determination to control inflation. “However, it should be noted that monetary policy is flexible to economic movements,” said Mui.

Michel Tosto, an institutional sales senior manager at VinaSecurities, said inflation was not a worry as long as it stayed in the single digit range. “But, we could see some interest rate hikes in the New Year, especially if the economy picks up strongly as many expect.”

The consumer price index (CPI) grew by 1.38 per cent month-on-month by end of December. The aggregate CPI increase in 2009 was estimated at 6.52 per cent. Last week, the State Bank decided to keep the base rate unchanged at 8 per cent in January, 2010. In Vietnam, banks are allowed to set mobilisation and lending rates within 1.5 times of the base rate.

A Vietinbank official said controlling credit growth was not an easy task. “Banks have money, enterprises want to borrow then loans will be extended,” she said. Normally, the State Bank contains the credit growth by imposing requests on state-owned banks and equitised banks like Vietinbank and Vietcombank where the state still holds golden stakes. These banks together make up 60-70 per cent of the credit market.

An Asia Commercial Bank official said credit growth would be driven in tune with economic growth. That means if the economic growth is slower than expected, credit expansion could be paced up and vice versa.
Prime Minister Nguyen Tan Dung admitted that Vietnam’s 5 per cent GDP expansion in 2009 despite macro difficulties was bsupported by effective monetary policy.


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