Pumping $8B into the economy a challenging task, analysts say

The State Bank of Vietnam (SBV) increased the credit quota from 14% to 15.5-16% this year, which means VND156-200 trillion in credit is set to be available until the end of the year.

"Increasing the credit quota is one of the key short-term measures to resolve the capital shortage in the economy," said economist Can Van Luc.

Capital shortages are one of the biggest problems for businesses this year as a post-pandemic boom in lending in the first six months made banks exceed the maximum amount of loans they are allowed to give.

But even now that the ceiling has been lifted, banks are set to face difficulties throughout the rest of the year in giving loans for several reasons.

The first obstacle is that many banks have nearly reached the safe loan-to-deposit ratio (LDR), which measures how much a bank is loaning against how much it has received from deposits.

The current regulations allow commercial banks to loan 85 dong at the most for every 100 dong it receives.

But 16 out of 27 listed banks had reached a LDR of more than 100% by the end of the third quarter on the tier-1 market (transactions between financial institutions and businesses or individuals).

However, they managed to keep their total LDR under the 85% cap by balancing the tier-1 LDR with the tier-2 LDR, which refers to transactions among financial institutions themselves.

One example is VPBank, which had loaned more than VND400 trillion by September 30 while its customers deposited just VND277 trillion. But it borrowed from other banks and foreign organizations to keep the total LDR under 85%.

SeABank, Techcombank and VIB and other lenders also managed to keep their LDR under 85%.

A deputy director of a state-owned bank, who asked not be identified, said that there are concerns about the ability of banks to loan even now that the credit quota has been raised.

Deposit interest rates have been rising but deposits have not been growing proportionately, which means banks are having trouble finding money to loan, she said.

Issues in the bond market have encouraged borrowers to rush to banks for credit, but banks can hardly satisfy their capital needs, she added.

Trinh Bang Vu, head of retail loans at Shinhan Bank Vietnam, said that his bank has been allowed to expand its credit quota from 14.6% to 16.6%.

But the sudden increase after a long time of restrictions has made it difficult for the lender to distribute loans now with only three weeks left before the year is over.