Eight commercial banks have received new credit growth quotas for this year, with seven of them entitled to lend less than last year.

The State Bank of Vietnam (SBV) on September 7 raised credit growth quotas for several banks, paving the way for these lenders to make new loans for clients.

Many banks made a high profit in 2021 thanks to high lending interest rates. However, they have been warned of ‘making a rod for their own back’.

The Central bank has lowered its interest rate cap three times by a combined of 1.5-2 percentage points per annum, which is the largest cut in the region.

Fitch Solutions expected credit growth to weaken to 7% in 2020 from 13.7% in 2019, but the growth is predicted to pick up to 12% one year later.

Since credit has been growing slowly because of low demand from businesses, commercial banks have increased the number of consumer loans to ‘liberate’ their plentiful capital.

Experts have forecast bank credit growth in the second quarter to reach 3.5-4 percent, much higher than the rate in the first quarter.

Credit demand in Vietnam is expected to stay low in the foreseeable future as the Covid-19 pandemic continues to be complicated globally, said a central banker.

Many commercial banks are proposing the central bank to extend credit growth limits as they have nearly reached the allowed threshold.

Vietnam’s credit growth is forecast to slow to only 8 percent in 2020 from 13.7 percent last year due to a sharp slowdown in economic activity amid the COVID-19 pandemic.

Credit growth of the banking system in the first two months of this year reached only 0.06 percent, slowing significantly against the 1 percent rate in the same period last year, due to impacts of the COVID-19 epidemic.

Vietnam’s credit growth, as of December 20, was reported at 12.1%, way below the 14% target set by the State Bank of Vietnam, according to the General Statistics Office.

As the real estate market is on the decline, cash flow will shift to other investment channels, analysts say.

Reporting high profits, Vietnamese commercial banks have once again lifted concerns about profit growth limits.

Vietnam’s credit growth is projected to fall below the 14% target set for this year by the State Bank of Vietnam (SBV), due to lower-than-expected lending to businesses in the industry, construction and telecommunications sectors.

The slow growth comes mainly from state-owned banks, which have become more stringent on their loan disbursements.

The demand for capital in the national economy usually increases in the second half of year. However, banks have nearly used up the credit quotas granted to them.

The State Bank of Vietnam (SBV) obtained a large amount of foreign currencies in the first half of 2019, pushing foreign exchange reserves recorded in the period to the highest level to date.

Instead of turning their back to small and medium-sized enterprises (SMEs) as they did in the past, commercial banks are approaching enterprises despite problems in accounting and collateral.