HCMC banks cautioned to reign in credit growth

15:10 | 10/11/2017 Finance - Banking

(VEN) - Ho Chi Minh City’s (HCMC) banking activities in the first nine months of the year continued to be stable, creating favorable conditions for supporting businesses in their trade and production activities. However, experts caution against further credit growth, especially if focused in the real estate market, to ensure the safety of the whole banking system.

hcmc banks cautioned to reign in credit growth

High credit growth

Total capital raised by credit institutions reached VND1,941 trillion by September 2017, an increase of 9.2 percent compared to the end of 2016. Vietnamese dong deposits continued to grow faster than those in foreign currencies, accounting for more than 87.9 percent of total capital raised.

Total outstanding loans in the city amounted to more than VND1,672 trillion, an increase of 13.5 percent compared to the end of 2016. Non-performing loans accounted for four percent of the city’s total outstanding loans, down 0.04 percentage points against December last year.

During the same period, Ho Chi Minh City-based commercial banks lent more than VND152.77 trillion to 37,920 customers in the government’s five priority sectors of agricultural production, export business, production by small- and medium-sized enterprises (SMEs), support industries and high-tech production. Loans to SMEs made up the highest proportion of 64.4 percent, or over VND98.44 trillion.

The stability of the monetary market and reduced lending interest rates were important results in Ho Chi Minh City’s banking activities in the first nine months of the year.

Real estate effect

Ho Chi Minh City’s total outstanding loans were far ahead of total capital raised in the first nine months of the year, reflecting an imbalance. Although commercial banks have focused lending in the government’s five priority sectors, capital pouring into the real estate market remained high. According to experts, given that the real estate market recovers unsustainably and bad debt is still high, pouring capital into its sector is considered harmful.

Ho Chi Minh City’s credit growth has nearly met the yearly plan. A main reason leading to the city’s high credit growth was attributed to the development of the real estate market.

The State Bank of Vietnam has approved the extension of credit growth limits for many commercial banks to support the country’s economic growth. However, credit allocation continues to favor the real estate market, or state-owned enterprises, without focusing on SMEs.

Therefore, caution is required against further credit growth to ensure the safety of the whole banking system.

Ngoc Thao