Vietnam unlikely to loosen lending

10:18 | 17/09/2015 Economy

Despite low inflation this year, the Government should remain cautious when offering support to boost economic growth, said director of the State Bank of Vietnam's Credit Department, Nguyen Tien Dong.

Vietnam unlikely to loosen lending

Some experts have recently suggested that the Government introduce monetary loosening packages to boost economic growth, noting that the current consumer price index (CPI) remained low. They were concerned that a further decline of CPI could cause negative affects on the nation's economic growth.

According to the General Statistics Office, for nearly the past decade, CPI in August fell 0.07% against the previous month and rose only 0.61% against December last year. August was also the third month this year, after January and February, which saw the CPI reduced, compared with the previous month, the office reported.

According to experts, if the index continues a downward trend it will not be suitable for supporting growth in an emerging economy like Vietnam, adding that emerging economies need a certain inflation rate in order to develop.

Admitting that the inflation rate is currently low, Dong said that the main task of the central bank was to stabilise inflation and the value of the Vietnamese dong, and creating trust among the public, as well as domestic and foreign investors.

Therefore, Dong said the central bank needed to remain very cautious about offering support packages, adding that a premature decision might only not help, but could harm the Government's past success in controlling inflation.

Not denying that a move to support economic growth at the moment was necessary, Dong said support should come not only from the banking industry, but also from other sources, such from the State budget or the capital market.

In fact, Dong said, no country, anywhere in the world, required that only their banking industry provide money for the purpose of economic growth. In other countries, the main task of a central bank was to stabilise the macro economy and inflation, Dong said, adding that the mobilisation of capital resources for investment mainly came from other sources, such as the capital market.

The banking industry should act only as a supplementary capital source for the economy during a certain period, Dong said.

However, currently in Vietnam the banking industry provides up to 80% of investment capital sources for the entire economy.

The ratio of medium- and long-term loans also remains high, accounting for up to 40% of the total loans.

These ratios were high because Vietnam's capital market was less developed, so the economy must still be based primarily on bank loans, Dong explained./.

Source: VNS