Credit growth was estimated to have expanded by 10% on-year by the end of October, Governor of the State Bank of Vietnam (SBV) Nguyen Thi Hong reported to the National Assembly.

Staff at a BIDV branch in Hanoi. Photo: Pham Hung/The Hanoi Times

Credit growth reached 10.08% in January-October, representing a year-over-year increase of 16.65%, the Governor said, adding that the targeted credit growth is set around 15% this year.

The current growth trajectory aligns with this goal, meeting capital demand, and supporting macroeconomic stability and inflation control, Hong said while noting that credit demand and absorption remain weak among businesses and individuals.

Many businesses have downsized or ceased operations due to post-Covid-19 issues such as order shortages, closures, liquidations, and weakened financial health, while consumers are tightening spending, the Governor said.

Hong stressed that the central bank has adjusted credit quotas for local banks without requiring them to apply for higher limits.

In early 2024, growth rates among banks varied, with some showing low or even negative growth, while others were close to their assigned credit quotas. In late August, the central bank raised credit limits for banks that had met 80% of their initial quotas.

Banks were also asked to give loans to prioritized sectors that are crucial to economic growth. The measure aimed to curb rising bad debts and ensure the system’s stability.

According to the SBV’s report, interest rates were held steady in January-October. The central bank kept urging banks to cut costs to lower lending rates. Banks were also required to disclose average lending rates and the difference between deposit and lending rates to make loans more accessible.

As of October 20, average lending rates had fallen by 0.76% from the end of 2023. However, the State Bank noted that further rate cuts would be challenging, given that lending rates have already decreased significantly.

The central bank predicted that increased credit demand during the year-end months will likely exert additional pressure on interest rates. Further cuts in lending rates for dong-nominated loans could intensify pressure on the exchange rates.

The SBV also highlighted the ongoing pressure on capital provision, as difficulties in raising funds through corporate bonds and the stock market pose significant risks for the banking system. This situation raises concerns about maturity mismatches and liquidity risks, as banks are increasingly reliant on short-term deposits to fund medium- and long-term loans.