Hanoi (VNS/VNA) - Credit growth in the first months ofthis year slowed significantly due to high interest rates and firms’ poorhealth, raising concerns about rising bad debts.

Credit growth by the end of February 2023 increased by nearly 0.8%,equal to only one-third of the rate in the same period last year.

However, the low credit growth is not because of banks’ shortageof capital and credit growth quota like at the end of last year.

The banking system's liquidity is currently in excess with morethan 50 trillion VND (2.1 billion USD), higher than the SBV’s mandatoryrequirements. The credit growth quota of banks is also very abundant in thewake of the State Bank of Vietnam (SBV)’s credit growth quota granting earlythis month.

SBV Governor Nguyen Thi Hong attributed the slow credit growth tosome reasons.

First, she said, the first two months of the year coincided withthe Lunar New Year, so capital demand was low during the long holiday.

Secondly, many firms are still affected by the COVID-19 pandemic,thus they are unable to meet the banks’ lending conditions.

Orders at many firms declined, making the demand for loans to fallfrom last year.

Finally, the difficulty of the real estate market has also causedthe loan demand to decline, the Governor said.

In a report sent to the Government, the Ministry of Planning andInvestment said the low credit growth showed difficulties in absorbing thecapital of firms and the economy.

According to many firms, their orders decreased, so they almosthad no demand for loans. Even instead of borrowing more capital, many firmshave tried to pay off existing loans to reduce financial pressure.

Most export firms are facing a decrease in orders. High inflationand declining purchasing power in major markets such as the US and the EUdirectly hurt firms.

A representative of the Vietnam Textile and Apparel Associationsaid the decrease in global purchasing power would likely cause the number oforders of the whole textile and garment industry to decrease by 25-30% in thefirst quarter of 2023.

The situation is not brighter for firms in the wood and furnitureindustry. Do Thi Kim Loan, General Director of Sao Nam Trading and ProductionCompany Limited, said orders from her company decreased by 30-35% compared tolast year.

Banking expert Can Van Luc told the VietNam News that besides decreasing consumer demand, firms are alsofacing difficulties in accessing capital and high interest rates.

As firms’ health is exhausted, Luc is very concerned about therisk of rising bad debt.

“Currently, the bad debt ratio of the whole banking system isstill under control with an on-balance sheet bad debt ratio of 2%," Lucnoted. "However, bad debts can worsen under the context of adverse impactsof the unfavourable conditions post-pandemic while the economy is at risk of aslight recession and the foreign exchange rate is under rising pressure.”

Nguyen Hoai Nam, Deputy General Secretary of the VietnamAssociation of Seafood Exporters and Producers (VASEP), said high interestrates are the biggest concern of firms. Therefore, he suggested the SBV offer amore preferential interest rate policy for seafood exporters, who are undergreat pressure due to high input costs.

Pham The Anh, head of the National Economics University’sEconomics Faculty, said many factors would support interest rate reduction in2023.

Vietnam should accept the devaluation of the Vietnamese dong in the short term to reduceinterest rates as high interest rates are more harmful to the economy than thedevaluation of the dong, Anh suggested.

The good news for firms is that commercial banks have agreed tofurther reduce the interest rates by 0.2-0.5 percentage points for 6-12 monthdeposits since early this week to pave the way for a reduction in lendinginterest rates.

Currently, the highest deposit interest rate is 9% per yearagainst more than 10% last year./.