Credit quality is now a priority

The central bank last week released its 2011 monetary policy targets with a  23 per cent credit growth rate for this year and year-on-year total monetary supply increase of 21-24 per cent.

The target is down from 2010’s planned 25 per cent credit growth. However, the implemented growth rate was 27.65 per cent in 2010 against 2009. Of which, Vietnamese dong credit grew 25.3 per cent and the US dollar credit rose 37.7 per cent. The monetary supply hiked 23 per cent and fund mobilisation expanded around 24.5 per cent by the end of 2010.

Tran Du Lich, head of Ho Chi Minh City Economics Institute, said credit quality should be questioned.

“For years, we have pushed credit growth to sky-high levels for economic growth at 6-8 per cent. The bank credit allocation should be reviewed. Ineffective fund allocation is one of the major factors leading to high inflation,” said Lich.

State Bank head Nguyen Van Giau admitted that Vietnam’s economic growth required more bank credit than other nations.

“For instance, if Thailand needs credit growth of 10 per cent to lock in GDP growth of 5 per cent. I think the financial system development is the key answer,” he said, adding that Vietnam’s enterprises heavily relied on bank loans, while in other countries businesses could access to money in various channels.

In 2010, Vietnam’s full-year GDP growth hit 6.8 per cent, beating the government’s target of 6.5 per cent and also noticeably stronger than 2009’s 5.3 per cent.

“What we should care about the quality of credit, meaning that the money should be poured in direct production sectors to gain high GDP rate instead of pouring a lot of money into property, securities and consumption of luxury items,” said Ho Chi Minh City Banking University’s Business Management Faculty head Le Tham Duong.

Duong said controlling credit growth at 23 per cent meant the government would decrease the money supply to pull inflation down.

Lending interest rates will also drop in the second quarter once the government implements measure to curb inflation at 3.5 per cent in the first half of 2011 as targeted.

“Local enterprises will not survive with credit interest rates of around 17 per cent,” Duong said.