ADB Predicts Credit Growth in Vietnam in 2019 Will Be Less Than 14%

Diep Nguyen

15:43 03/04/2019


With slower GDP growth and stricter control of credit in high-risk areas such as real estate, credit growth will likely be contained in 2019 below last year’s 14.0%.

ADB Predicts Credit Growth in Vietnam in 2019 Will Be Less Than 14%
With growth in the global economy and world trade forecast to slow, growth in Viet Nam is forecast to moderate but remain strong at 6.8% in 2019 and 6.7% in 2020. Growth will continue to be broad-based, underpinned by export-oriented manufacturing, inward FDI, and sustained domestic demand. 
Ongoing reform to improve the business environment should encourage private investment, as should efforts to forge stronger ties with partners around the world through various trade agreements.
Viet Nam’s ratification of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership in 2018, and its expected free trade agreement with the European Union, may stimulate investment in the near term as foreign enterprises explore the expanding business opportunities that Viet Nam offers.
These trade agreements signify the government’s continued commitment to liberalizing the economy. The government targets the establishment of 140,000 new businesses in 2019, which bodes well for exports, FDI inflows, and private investment more generally. 
The outlook for private consumption remains robust as households enjoy rising incomes and stable inflation. Investment should find support in accelerated public capital expenditure this year and next to meet the target of the country’s 2016–2020 socioeconomic development plan. 
By sector, manufacturing and construction will slow but still maintain solid expansion, with substantial FDI likely to flow into export-orientated manufacturing. The purchasing managers’ index points to rising orders in manufacturing. Services will benefit in 2019 from continued growth in retail and wholesale trade, and in banking and finance. 
An expected 16.0% annual increase in tourist arrivals this year and next, though slowing from growth in 2018, should support tourism-related businesses such as hotels, restaurants, and transportation. Meanwhile, agriculture will likely expand at near the government’s target of 3.0% per year.
Inflation is expected to continue to average 3.5% in 2019 but accelerate to 3.8% in 2020. The announcement that the US Federal Reserve will no longer raise its policy rate in 2019 is likely to relieve pressure on the Viet Nam dong and inflation, as will lower international oil prices.
Upward adjustments to administered fees for public education, health care, and electricity may add to inflationary pressures, however, as may a higher minimum wage. The current account surplus is expected to narrow to the equivalent of 2.5% of GDP this year and 2.0% in 2020 as exports decelerate under softening global demand but imports slow less because of robust domestic consumption and investment. 
Remittances may also suffer from slower global growth. If trade tensions between the People’s Republic of China (PRC) and the US drag on, Viet Nam may benefit as trade and production shift from the PRC to its regional neighbors, with as much as 2.0% of GDP accruing over the medium to long term, mostly beyond the forecast horizon.
The government will continue to pursue fiscal consolidation even as it supports growth. It targets holding the fiscal deficit to the equivalent of 3.6% of GDP this year and reducing it in 2020. To spur investment and support economic growth, the 2019 budget plans to raise capital expenditures by 7.4%.
Current expenditure is set to rise by 7.2%. With slower GDP growth and stricter control of credit in high-risk areas such as real estate, credit growth will likely be contained in 2019 below last year’s 14.0%. The resolution of banks’ nonperforming loans is expected to continue in 2019 and 2020. 
Nonperforming loans—including those warehoused at the Viet Nam Assets Management Company and other problem loans not yet classified as nonperforming—are to be reduced to below 5% of banks’ outstanding loan portfolio in 2019 and to 3% in 2020. This should make the banking sector more stable and efficient, as should Viet Nam’s implementation of Basel II standards and its easing of restrictions on foreign ownership of banks.
External risk to the outlook would be a sharper slowdown in the major economies, including the European Union, the US, Japan, and the PRC, Viet Nam’s key trade partners. Domestic risks could stem from lackluster progress in reforming state ownedenterprises. The equitization of   state-owned enterprises in 2018 fell far short of the government’s target of at least 85 enterprises.
 The establishment of the Committee for Management of State Capital in 2018 is expected to ensure that the use of state capital is more effective so that conflicts that arise from the state having dual roles as owner and regulator are minimized. By leveling the playing field for the private sector and reducing market distortion, the government hopes to encourage more private enterprise.


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