Hanoi (VNS/VNA) - Expertshave forecast bank credit growth in the second quarter to reach 3.5-4 percent,much higher than the rate in the first quarter.

In the first three months, therates had been 0.1 percent, 0.07 percent and 1.1 percent as the COVID-19pandemic severely impacted various industries and their demand for funds.

Consumer demand and foreigntrade were also badly hit.

The State Bank of Vietnam (SBV)said in the first quarter many businesses increased repayment of existing debtswhile not borrowing afresh.

Experts say the situation hasbeen improving in the second quarter with demand from credit from businessesand individuals showing signs of increasing.

In Hanoi, total loansoutstanding at credit institutions in May were estimated at 2.163 trillion VND(94 million USD), representing a 2.4 percent increase for the year.

Credit growth is expected toimprove significantly thanks to many proactive measures taken by the Governmentand central bank recently to revive the economy.

For instance, the SBV has cutbenchmark interest rates, the latest occasion being on May 12 when therefinancing rate was reduced to 4.5 percent from 5 percent, the discount rateto 3 percent from 3.5 percent and the overnight inter-bank lending rate to 5.5 percent,from 6 percent.   

Fitch Solutions expertsforecast a further 50 basis point cut that would take the refinancing rate downto 4 percent and discount rate to 2.5 percent by the end of this year.

The cuts are likely to have astrong impact on the economy by encouraging banks to reduce their lendinginterest rates and boost demand for credit, experts say.

Besides, low deposit interestrates, especially for the short term, has helped and will help banks reducetheir cost of funds further, giving a further fillip to lending interest ratecuts.

The Government recently gave afive-month extension for payment of taxes and land use fees for businesses hitby the pandemic, which come to an estimated 180 trillion VND, benefiting 98 percentof firms in the country.

All these measures are expectedto help increase the credit demand.

The Government’s policy ofidentifying public investment as the engine for economic growth, which hasstalled due to the pandemic, has placed the focus on speeding up disbursementof public investment.

While other investment sourceshave slowed down, increasing public investment, planned at nearly 700 trillionVND this year, should be useful in accelerating post-pandemic economic growth,thus creating more employment and increasing credit demand.

Though credit growth isexpected to be only 9-10 percent this year compared to 13 percent last year,paradoxically some banks have nearly reached their full-year credit quota andare asking the central bank for more credit quotas as they have nearly reached thethreshold.

VPB for instance has crossed 12percent while it has a full-year quota of 13 percent.

Its CEO said the bank hadturned its lending focus to customers less affected by the pandemic since thebeginning of this year.

TPBank announced at its annualgeneral meeting recently that its credit growth by the end of April was 11 percent,meaning it had only 0.5 percent left.

It is expected to ask thecentral bank to increase its limit to 15 percent this year.

HDBank’s loans outstanding atthe end of the first quarter were worth 162.06 trillion VND (6.9 billion USD),up 5.92 percent for the year, much higher than the industry average. Itreported steady growth across all segments like individual customers, small andmedium-sized enterprises and consumer loans.

It attributed the high growthrate to signing contracts with enterprises late last year.

Experts have warned that ifthese banks’ credit quotas for the year are not increased, they, the businesssector and indeed the entire economy would face trouble.

Though exports are hit by thepandemic, the demand for investment and production of goods in the countryremains high, meaning the demand for credit is still significant.

This year’s credit growth islikely to reach 9-10 percent, lower than the central bank’s 11-14 percenttarget, but any change is possible, they added.

Balance of trade, paymentssurpluses keep the VND steady

The COVID-19 pandemic has hitglobal trade hard, but some of Vietnam’s exports have escaped its worsteffects, which has helped keep the VND-USD exchange rate steady.

In the first five months of theyear Vietnam’s biggest export earners were processed and manufactured goods, ofwhich 17 generated at least 1 billion USD each.

Electronics, computers andaccessories accounted for 15.3 billion USD, a year-on-year increase of 22.1 percent.Exports of machinery, equipment, components, and tools reached 8.5 billion USD,a 25 percent rise.

While several agriculturalproducts saw a drop, coffee and cashew achieved slight increases.

According to the GeneralStatistics Office, Vietnam’s total trade in the first five months was worth 196.8billion USD, a decrease of 2.8 percent against the same period last year. It enjoyed a surplus of 1.9 billion USD.

This means there has been asubstantial inflow of foreign currency, stabilising the exchange rate.

Since the end of last year thedollar rate at banks has appreciated by only 92 VND, or 0.24 percent.

Speaking about the influence ofthe yuan on the VND, experts said the depreciation of the Chinese currencyhas only had a marginal effect so far.

The confrontation between theUS and China has shown no signs of ending, which could further depreciate theyuan, but the Chinese Government does not seem to have plans to sharply devaluethe currency.

Meanwhile, Vietnam stillpursues a strategy of keeping the exchange rate steady.

The country is also running abalance of payments surplus, which gives it a further cushion.

The VND is expectedto escape volatility caused by external factors through this year./.