Hanoi (VNA) - Analysts believe banking credit growth will ease off nextyear, but since lending activities will mainly be focused on the economy,growth will not be affected.

Bao Viet Securities Company said in a report on the prospects of the bankingsector that credit growth in the next three to five years would be around 14percent a year, lower than the average rate of 18.1 percent in the 2015-17period.    

It said the lower credit growth would be due to a decline in both funds supplyand demand.

With respect to the demand, economic growth next year is projected to slow downslightly to 6.4-6.5 percent, reducing demand from companies for funds to expandproduction and business.

The expected interest rate hikes of 0.25-0.5 percentage points in 2019 wouldalso have an impact, BVSC analysts said.

Another factor will be the State Bank of Vietnam’s new regulations onincreasing the risk weightage for real estate loans from the current 200percent to 250 percent from next year. It means that for every dong of realestate loan given, the risk-weighted assets will increase by two and a halfdong. This will make it a significant disincentive for banks to lend to theproperty sector since their minimum capital requirement is a ratio of theirrisk-weighted assets under the Basel norms.

Another new central bank regulation reducing the maximum quantum of short-termdeposits that can be used for medium- and long-term loans from the current 45percent to 40 percent next year will reduce banks’ liquidity.

Experts in different sectors have pointed out that after several years of highcredit growth of over 18 per cent many banks are showing signs of slowing downlending since the last months of 2018.

The country’s credit to GDP ratio now stands at 130 percent, causing thecentral bank to keep a close eye on credit.

Various external factors have forced the central bank to tighten monetarypolicy, experts said.

They include the escalating trade war between the US and China, whose likelyeffect on inflation is unknown yet. Global fuel prices rose steadily earlierthis year, bringing inflationary pressure.

When there is fear of inflation, one of the main weapons central banks deployis tight money.

Dr. Nguyen Dinh Cung, Director of the Central Institute of Economic ManagementResearch, said: “The State Bank of Vietnam has regulated/ has been carefullyregulating credit policies to ease inflationary pressure and enable the countryto cope with the risks of an economic slowdown.”-VNA