VINACHEM

To obtain a 20 percent credit growth rate this year, total outstanding loans will have to increase by VND1,200 trillion. In the last five last months of the year, VND700 trillion is expected to be pumped into circulation.

A report from the National Financial Supervisory Council shows that credit grew by 9.3 percent by the end of July 2017 compared with the end of 2016. It noted that while credit grew rapidly, the GDP did not grow proportionally.

Bao Viet Securities thinks there might be two probabilities. First, the money went to the production sector, but it will take time to show its effects on the economy. This means that the effects would only be seen after one quarter or several quarters, depending on businesses’ specific characteristics.

Second, the structure of the loans was unreasonable, which drove cash flow to securities and real estate. Loans served speculators, not production.

Meanwhile, an SBV report found that 80 percent of loans were provided to the production and business sector.

The loans funding risky business fields increased slightly. Credit for the real estate sector grew by 5.5 percent and outstanding loans to BOT projects rose by 1.75 percent.

Nguyen Quoc Hung, SBV’s Credit Department, said the credit had grown by 9.68 percent by August 15, of which a large amount of capital had gone to agriculture, amounting to 14-15 percent.

What will happen?

PM Nguyen Xuan Phuc at the government’s regular meeting on August 3 asked SBV to take measures to force down lending interest rates and obtain a 20 percent credit growth rate this year, instead of 18 percent as initially planned.

The total outstanding loans of the entire banking system have reached VND6,000 trillion. To obtain a 20 percent credit growth rate, the outstanding loans will have to increase by VND1,200 trillion, which means VND642 trillion will be pumped into the economy through banks.

Counting the VND143 trillion deposited by the treasury at commercial banks, which may be taken back to be disbursed to public investment projects, a huge amount of money will be supplied.

The extension of the credit growth rate limit to 20 percent, in analysts’ eyes, conveys a message about loosening the monetary policy.

Nguyen Tri Hieu, a renowned banking expert, warned that no one can be sure of the exchange rate, which has been stable, and won’t see fluctuations in the near future.

Meanwhile, an expert said he fears the money supply increase would lead to high inflation. This happened in 2008 when high money supply led to a 23 percent inflation rate. - VNN -