Saturday , September 30 2023

Lawmakers want bank credit growth quotas scrapped

The National Assembly wants the government to gradually remove the credit growth cap for banks, a policy it finds anomalous in a modern economy.

Ninety nine percent of lawmakers Thursday voted in favor of a new decree which supports the scrapping, though they did not specify a deadline.

Earlier this month they had questioned the State Bank of Vietnam governor Nguyen Thi Hong on the policy of setting credit growth quotas for each bank, saying it is redolent of a centrally planned economy that Vietnam abandoned in the late 1980s and inconsistent with current times.

The central bank allots a credit growth quota for each bank once or twice a year, and Hong defended it saying it is needed because Vietnam is among the countries with the highest credit to GDP ratio of 24 percent.

Letting banks determine their own credit growth could have consequences like bankruptcy since they are not very transparent, she added.

But experts have called for removing the caps.

Ho Quoc Tuan, a lecturer at the U.K.’s Bristol University, said few countries have Vietnam’s credit growth cap policy, and suggested using Basel standards to control credit growth.

Economist Can Van Luc said the capital adequacy ratio is a useful tool to control credit growth as long as the central bank can ensure banks’ capital hikes are legitimate.

Some banks complain they have reached their limits after credit grew by 8 percent in the first five months, and so cannot lend further though they have the money and businesses need funding.

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