Central bank chief defends delay in credit growth cap hike in 2022

The National Assembly Economic Committee pointed out in a recent report that the SBV had focused too much on containing inflation that it allowed interest rates to stay too high at the end of last year and early this year besides also keeping the credit growth cap of 14% for too long.

In response, central bank governor Nguyen Thi Hong said the criticism ignored macro factors, pointing out that the SBV is tasked not only with managing interest rates but also ensuring currency stability and banks’ safety.

In October last year when there was a run on the Saigon Commercial Bank due to fears it might collapse, the central bank had to prioritize protecting the entire banking industry from contagion, he told lawmakers at a meeting Monday.

Many banks had been short on liquidity then and were at risk of defaulting if they also faced a run, while at the same time the currency situation was tense with the U.S. dollar gaining 10% against the dong, she said.

She said the central bank therefore had to address three issues at the same time: stabilizing the currency market, interest rates and credit growth quotas.

It had to wait for the situation to stabilize to raise the 14% credit growth cap, she said. In early December it had hiked the cap by 1.5-2.0 percentage points for certain banks.

This year it has a growth quota of 15%.

Speaking about SBV’s plans for this year, Hong said inflation could not be overlooked after prices increased by 4.49% in the first nine months of this year.

In the event, the central bank would continue to closely monitor inflation in the coming months, she said.

SBV data shows that credit growth had been only 7% as of the end of September as against the 15% cap, which concerned lawmakers, who said it shows businesses have been slow in recovering.

Hong expressed the hope that consumption would be stimulated by government policies and new export markets would be discovered, which would spur credit growth.

She said the SBV is in the process of reviving ailing banks.

It is restructuring the SCB, which it put under special government control in October last year to ensure safety, she added.