Credit as a lever for growth: Caution should be exercised

14:37 | 24/07/2017 Finance - Banking

(VEN) - Credit growth in the early months of the year has reflected the recovery of the economy and its ability to absorb business capital. However, caution should be exercised when using credit as a lever for growth.  

credit as a lever for growth caution should be exercised

Credit growth reached an estimated 6.8 percent by May 2017 compared to the end of 2016. In particular, credit recorded steady increases, meaning that capital absorption has been stable since the beginning of the year. To complete this year’s credit growth target of 18 percent, as set out by the National Assembly, credit growth needs to reach 1.6 percent per month on average. According to bankers, this figure is attainable, as demand for capital will increase in the remaining months of the year.

In fact, many National Assembly members suggested at the third session of the 14th National Assembly that this year’s credit growth could be expanded more by two percent to 20 percent to ensure the GDP growth target of 6.7 percent. However, such a decision needs to be carefully considered as high credit growth is seen as a double-edged sword.

The National Financial Supervisory Commission (NFSC) also pointed out that the difference between outstanding credit and Vietnam’s GDP has been rising since the end of 2015. This rate, which is used as an early warning for liquidity risk, reached 11 percent in the first quarter of 2017.

“This is only slightly lower than in the recession period of 2011, when the difference stood at 13 percent,” NFSC warned. The banking system and the securities market mainly provided capital for the economy in the last five months, accounting for 70.6 percent of the total capital supply.

According to economists, it is necessary to speed up the disbursement of government bonds worth several tens of trillions of Vietnamese dong and strengthen the settlement of bad debts. In addition, credit should be more focused on priority areas and carefully considered in such fields as consumer loans, house purchases and repairs.

According to the NFSC, consumer credit continued to increase sharply in the first quarter of this year. Credit for house purchases and repairs increased by 38.4 percent compared to the end of 2016, accounting for 52.8 percent of total consumer credit.

Duy Minh