Vietnam Gov’t Asks for Further Rate Cut to Buttress GDP Growth

Tuan Minh

12:12 13/09/2017

BizLIVE - HSBC has warned that a higher credit growth rate may pose considerable risks to the economy.

Vietnam Gov’t Asks for Further Rate Cut to Buttress GDP Growth

The headquarters of the State Bank of Vietnam in Hanoi. Photo: Minh Tuan/BizLIVE

The Vietnamese government has asked the State Bank of Vietnam (SBV), the country’s central bank, to work out ways to further reduce lending rate levels by 50 basis points so that the year’s economic growth target can be meet.
The SBV in early July surprise cut its benchmark refinancing rate by 25 basis points to 6.25% per year and trimmed lending rates for the five priority sectors by 50 basis points.
“[The SBV] needs to strive for credit growth of 21% this year to ramp up production and business,” the government said in a resolution on Tuesday.
The government initially aimed for total lending to grow 18% this year. However, it risked missing its self-mandated GDP growth target of 6.7% following lower-than-expected GDP figures in the first two quarters.  
This is the first time the government has made an official announcement that the credit growth target has been increased.
Prime Minister Nguyen Xuan Phuc took office in April last year, inheriting a series of economic troubles from the previous government. Vietnam’s GDP growth ended 2016 at 6.21%, below the year's target of 6.7% and 6.68% in 2015.
The prime minister also requested the Ministry of Planning and Investment to guide other ministries and localities to speed up disbursement of state budget-sourced capital to help meet the year’s growth target of 6.7%, the statement said.
“We believe Vietnam could easily reach a 21% credit growth rate by the end of the year, but this may pose considerable risks to the economy given the slow resolution of legacy non-performing loans and the quality of credit that could be created in reaching the new target,” HSBC said in a note dated September 1.
The bank suggested the Vietnamese government pay attention to the quality and allocation of credit as well as resolving existing bad debt issues to ensure that increased credit growth translates to higher and more sustainable growth in the future.