The credit growth target could be difficult to meet

13/03/2020

Credit growth is usually achieved right from the first months of the year, although the increase is not high due to the impact of the long Tet holiday. However, this year the credit situation is quite the opposite when credit growth is negative in the first two months of this year.

Mr. Nguyen Quoc Hung, Head of Department of Credit for Economic Sectors, said that as of February 7, 2020, the outstanding loans to the overall economy reached VND 8,164,561 billion, a decrease of 0.38% compared to the end of 2019 and a decrease of 0.47% compared to the end of the previous month. In particular, outstanding loans decreased mainly in some sectors affected by COVID-19 outbreak such as processing and manufacturing industries which account for 16.48% of GDP, and account for 14.52% of total outstanding loans of the economy; followed by agriculture, forestry and fisheries which account for 13.96% of GDP and 8.74% of the total outstanding loans to the economy.

Many economic experts also said that the COVID-19 outbreak is complicated, causing negative impacts on production and business activities and people's lives. Almost all economic sectors have been affected by the outbreak, including those affected by immediate and large impacts such as tourism, aviation, agricultural product export, etc.

Even the manufacturing sector is also affected significantly when many businesses in textiles, footwear, electronics, etc. are heavily dependent on raw materials and components imported from China. According to the General Department of Customs, of Vietnam's total import turnover of USD 253 billion in 2019, the import from China alone is USD 75 billion. In particular, machinery, equipment, tools, and spare parts are imported from China for industrial manufacturing with value of USD 14.9 billion; Group of cotton, textile fibers, fabrics, raw materials for the textile and footwear industry, etc. imported from China with the value of USD 11.52 billion.

Speaking at a recent meeting of the Ministry of Industry and Trade, Mr. Truong Thanh Hoai, Director of the Heavy Industry Department - Ministry of Industry and Trade also acknowledged that Vietnam's manufacturing and processing industries are now heavily dependent on the supply of raw materials and components from China and other countries affected by the outbreak (South Korea, Japan) for production. In particular, one of the industries most affected is the electric and electronic industry. Currently, electronic enterprises only have enough spare parts and accessories for production till the middle to the end of March 2020.

Obviously, when the production - export is delayed, it will affect the revenue and cash flow for debt payment of businesses, therefore the demand for credit will also decrease.

Recently, the State Bank of Vietnam issued Document No. 1117/ NHNN-TD requesting credit institutions to proactively grasp the situation of production and business, review and assess the extent of losses to customers who are borrowing capital due to COVID-19 outbreak for: restructuring the repayment period, reducing interest rates, temporarily keeping those borrowers affected by the COVID-19 outbreak in their current debt group, etc.; at the same time, providing new loans to customers in accordance with regulations to stabilize production and business.

In the preliminary evaluation report of the impact of the COVID-19 outbreak on the world’s and Vietnam’s economy recently published, Mr. Can Van Luc and the author of the BIDV Training & Research Institute forecast that this outbreak could cause a decline in credit demand due to lower credit demand of businesses and households, especially in the first quarter and second quarter of 2020.
 

Kylie Nguyen

© 2019 Vietnam Bank for Agriculture and Rural Development No. 2 Lang Ha street, Ba Dinh district, Hanoi, Vietnam
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