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IMF warns that Vietnam's credit growth is too fast

 

Vietnam's credit / GDP ratio is nearing the level of previous macroeconomic instability, suggesting potential risks ahead.


In a report after an annual consultation on Vietnam's economy, the International Monetary Fund (IMF) has warned that rapid credit growth could pose new risks to the banking system.

Credit growth has grown rapidly over the past two years, which has led to a 23.5% increase in credit / GDP ratios. If credit growth hits 15-17% this year, the ratio will widen further and signal a degree of financial stability risk.

Vietnam's credit / GDP ratio is nearing the level of previous macroeconomic instability, suggesting potential risks ahead. The previous credit cycle has led to the deterioration of bank balance sheets and rising inflation.

For example, in 2008 and 2011, lending to state-owned enterprises and real estate was huge - up to more than 20% - and causing bad debts to increase rapidly and weakly in the banking system. So far left a remnant in the economy.

The IMF said that credit has increased by an average of 24% in the last 10 years. The credit / GDP ratio averaged 4.8 percentage points per annum between 2000 and 2015 and reached 124 percent by the end of 2016, surpassing the average for the ASEAN-5 and other middle income countries.

The fund recommends that Vietnam reduce its credit growth target to 15% per annum and concludes that the credit / GDP ratio at 80% is reasonable.

The IMF also voiced concerns that state-owned enterprises are absorbing large amounts of credit, slowing economic growth and increasing the risk of future bad debt if credit is not allocated on a targeted basis. Mere trade.

In addition, rapid credit growth has also raised concerns about the effectiveness of new credit. A large amount of credit has been provided by banks for the real estate sector through direct lending, infrastructure construction loans and collateralised assets. As a result, the financial institution advocated raising the risk premium on real estate loans to 250% from January 2017 to 150% earlier.


According to Minh Tuan
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