What to do when the market is weak and demand is low?

Reduced interest rates but credit still declines

At the online credit conference on February 20, Mrs. Ha Thu Giang – Head of the Credit Department of Economic Sectors, State Bank – said: “Credit growth reached 13.71% by the end of 2023, however, by the end of January 2024, it decreased by 0.6% compared to the beginning of 2023.”

Mrs. Giang explained the decrease in 5 out of 9 credit organizations: State-owned commercial banks decreased by 0.88%; Joint stock commercial banks decreased by 0.51%; One member limited liability banks decreased by 2.22%; 100% foreign-owned banks decreased by 0.32%, joint venture banks decreased by 3.41%.

In addition, as of January 31, 2024, deposit and lending interest rates continue to decrease; average interest rates for new transactions of commercial banks decreased by about 0.15% per year and 0.25% per year compared to the end of 2023.

This year, the State Bank of Vietnam aims for the credit growth of the entire system to reach about 15%, adjusted appropriately according to the situation, the reality and as of December 31, 2023, the State Bank has allocated all the credit growth targets for credit organizations, publicly announcing the principles for defining credit growth for credit organizations to actively implement credit growth to provide credit resources for the economy.

Prior to that, on February 7, the State Bank of Vietnam also sent a letter to credit organizations stating that despite the policies to boost lending from the beginning of the year, credit growth reached a relatively low level compared to recent years.

Accordingly, the State Bank of Vietnam has requested credit organizations to strongly implement appropriate credit growth solutions right from the beginning of the year, timely meeting the credit capital needs of the economy. Directing credit towards priority business areas, priority sectors, and economic growth drivers, strictly controlling credit for potential risky areas, ensuring safe and efficient credit operations.

What do banks say about the credit reduction?

According to Mr. Nguyen Thanh Tung – CEO of Vietcombank, as of the end of January 2024, credit reached VND 1.24 million trillion, down 2.3% or VND 30,000 trillion compared to the end of 2023. The reason for the credit reduction, according to Mr. Tung, is due to the trend of reducing personal and real estate loans. Due to the difficult economy, difficult production, the real estate market has slowed down in 2023 and 2024. Licensed projects in 2023 were few… These factors have affected the decline in consumer real estate loans in 2023 and early 2024.

Moreover, wholesale credit accounts for 70% of Vietcombank’s credit debt and is currently facing legal issues. “We are working with customers to resolve legal difficulties, but it takes a long time. This slows down the disbursement of medium and long-term funds,” Mr. Tung said.

Mr. Tran Long – Deputy CEO of BIDV – also shared that the total outstanding debt of the bank by the end of January reached VND 1,725 trillion, a decrease of 1.25% compared to the end of 2023. This is a decrease as usual in previous years.

BIDV still provides credit focusing on priority sectors, rural lending accounting for 23%, small enterprises 25%, high-growth applications 8%… In terms of real estate, debt accounts for 19%, mainly focusing on consumer loans 77% and only accounting for 22% for real estate enterprises, mainly for industrial zone development projects, export processing zones, urban areas.

According to Mr. Long, following the interest rate reduction in 2023, the lending interest rate currently decreased by 0.25% at the end of 2023, the average interest rate of the entire system is 7.3%, short-term rate is 6.7%, reducing relatively deeply compared to the beginning of 2023 and mid-2023. “The capital absorption in 2024 is still slow and challenging. Business operations face many difficulties such as legal issues…,” Mr. Long said.

Mr. Pham Nhu Anh – CEO of MB – pointed out that MB is slightly reducing credit debt since the beginning of the year. Comfortable credit room in 2023, so there is not much demand in January. However, according to Mr. Anh, the current market demand is weak, with low absorption capacity. The purpose of borrowing is a big story. The economic structure is still difficult.