The positive credit growth in the first months of the year is an important signal, reflecting the recovery process of the economy. However, there are still concerns about credit control, tightening and the risk of cash flow disruption from businesses.
Causes of good credit growth
By the end of April 2022, Vietnam’s credit growth had reached 6.75%, which is 1.6 times higher than the growth rate in the same period in 2021. Accordingly, approximately VND 705,000 billion was poured into the economy in the first four months of this year, and in April, the figure was more than VND 284,000 billion, accounting for 40% of the total amount. Notably, contrary to every year when credit growth tends to decrease in the first months of the year, this year credit has increased sharply since January.
Specifically, according to updated and shared data from management agencies, by the end of January, credit growth had reached 2.74% compared to the beginning of the year, the highest level in 10 years. By the end of February, although the growth rate had dropped to 1.82%, in March it climbed to 4.03% and especially showed signs of accelerating sharply in April. This shows a stable recovery trend of the economy.
The index of industrial production in the first four months of this year continued to increase by 7.5% compared to the previous month, while the purchasing management index in April remained above 50 points.
As for business registration, in the first four months, there were 49,600 newly registered enterprises, an increase of 12.3% over the same period in 2021. In addition, there were 30,900 enterprises returning to operation, an increase of 60.6% over the same period in 2021. Therefore, a sharp increase in loan demand is inevitable.
Despite facing many challenges in recent times, the total value of corporate bond issuance in the first four months of this year still increased by 60% compared to the same period last year, reaching VND 77,262 billion. In particular, real estate businesses continued to lead in terms of issuance value with a total volume of VND 28,856 billion, accounting for 33.75%. It should be noted that if banks buy corporate bonds, the value of corporate bonds will also be included in the credit balance of the banks.
In addition, it is not excluded that accelerated debt restructuring activities also contribute to the growth of credit balance at banks. Particularly from the perspective of customers, before the interest rate increases, many people will probably take advantage of the current low interest rates.
Fear of disruptions in cash flow
Despite the positive developments of the economy as well as credit activities in recent months, many businesses are still afraid of the risk of cash flow disruption, especially in the context of capital financing channels for businesses facing difficulties and showing signs of tightening.
Recently, many businesses when repaying bank loans and requesting a re-borrowing have only been approved about 70-80% of the loan value. This movement shows opposite signals compared to the strong credit growth figure since the beginning of the year.
While some banks said that because credit growth has reached the assigned target and there is no room left for development, and so it is necessary to limit the number of new loans, it does not exclude the possibility that banks are controlling and tightening credit in the face of recent risk aversions. Moreover, liquidity is no longer as abundant as in the previous period, which somewhat limits business development.
Specifically, according to the latest updated capital mobilization growth data of the General Statistics Office, as of March 21, the figure only reached 2.15% compared to the beginning of the year, much lower than the credit growth rate of 4.03% in the same period. With liquidity under pressure, many banks have continuously raised deposit interest rates since the beginning of the year.
Limiting loans or reducing the customer's new loan balance compared to previous loans can put businesses in a difficult position and affect their business development goals and plans, as well as can cause them to face the risk of cash flow disruption and liquidity risk.
In particular, real estate businesses seem to be being affected the most as the State Bank continues to strictly control real estate loans to prevent asset bubbles. Even some banks have recently stopped disbursing outstanding loans for real estate lending purposes.
In addition, an important and long-term funding channel is the stock market, which is also facing difficulties with stock prices continuously plunging. Meanwhile the corporate bond market has also suffered from recent scandals and is constantly warned of risks. It should be noted that the amount of corporate bonds issued in recent years is very large and is getting closer to maturity. Tighter policies in the bond channel may make it difficult for businesses to carry out new issuance deals to have cash flow to pay for due loans.
When investment and business capital flows are disrupted, businesses may have to accelerate sales or even sell projects prematurely to ensure cash flow and repay loans to bondholders, leading to a decline in asset prices.