Vietnam’s credit growth forecast to reach 12% in 2023

Credit growth in Vietnam will hit only 12% this year due to the ailing real estate market, decelerating export growth, and high interest rates, said top broker VNDirect Securities.

In its recently released banking industry report, VNDirect said the country’s inflation is expected to remain high due to a 20.8% increase in base salary from July, and price hikes in healthcare and public transport services, affecting credit growth.

"Shrinking liquidity is also a reason for credit growth slowdown this year," it added.

According to State Bank of Vietnam (SBV) data, as of February 24, credit in the economy had expanded only 0.77% compared to the beginning of the year, while money supply increased very slowly, 0.05% compared to the end of 2022.

Liquidity "stress" has been recorded in the Vietnamese banking system since the third quarter of 2022, with money supply M2 by late November rising only 3.6% from the year beginning, much lower than the credit growth of 14.8%.

This shows that pressures on liquidity and the loan-to-deposit ratio (LDR) of banks increased significantly from 2021.

However, these pressures have eased somewhat since the outset of 2023. The cooling exchange rate pressure has created room for the central bank to support liquidity by actively buying foreign currencies.

According to VNDirect, the SBV bought $3.6 billion from early 2023 to mid-February. As a result, the interest rates have decreased significantly from the peak levels.

In addition, Circular 26/2022, issued by the SBV on December 31, 2022, is considered an important factor supporting the banking system's liquidity, as about 50% of the State Treasury’s term deposits at commercial banks, estimated at more than VND150 trillion ($6.33 billion), will be used as a source for loans.

In the past week, the central bank allocated credit growth quotas to a number of banks. Maritime Bank was provided with the highest credit growth limit at 13.5%, followed by HDBank 11%, Asia Commercial Bank 9.8%, and Vietcombank (VCB) 9.6%.

Both Vietnam International Bank (VIB) and Techcombank (TCB) enjoy a credit growth cap of 9.5%, TPBank 9.1%, VPBank and MBBank 9%, BIDV 8.3%, and LienVietPostBank 8%.

These banks boast diversified credit portfolios, healthy asset quality, and abundant liquidity, and engage in supporting “weak” credit institutions, said VNDirect.

The broker predicted that VPBank and HDBank will take the lead in credit growth, at 22% and 20% respectively. Next are MBBank 18%, ACB 13%, LienVietPostBank 13%, VCB 12%, VIB and TCB 11%, and TPBank 10%.

Vietnam’s credit growth reached 14.5% in 2022, according to the SBV. The country's 2022 inflation was reined in at 3.15% compared with 2021's average, lower than the set target of 4%.

This was a significant result, given that 2022 inflation was forecast at about 5.7% in developed countries and 8.7% in developing and emerging economies.