In a much-touted effort to contain inflation, stabilise the macro economy and ensure social welfare, the central bank has capped credit growth this year at less than 20 percent, with lending to non-manufacturing sectors to be curbed.

The general director of a HCM City-based joint-stock bank that has just raised its chartered capital from 1 trillion dong to 3 trillion dong said the bank's profit growth this year should be in parallel with its capital growth, but under the current circumstance, its profit target would be hard to achieve.

Another bank in the city, Eximbank, has also found it difficult to push its credit growth lower than 20 percent, Tran Tan Loc, deputy general director of the bank, said at a meeting with the central bank's HCM City branch in late February.

He said his bank's equity now was high and its capital adequacy ratio was 17 percent, much higher than the mandated level of 9 percent, so if the bank cannot increase credits, its capital could not be efficiently used.

As explained by the central bank, total outstanding loans include almost all financial tools such as discounting, underwriting, factoring, and even corporate bonds purchases. Prior to the new law on credit institutions, such financial operations were not included as outstanding loans.

In addition, for credit contracts signed last year that have not yet been disbursed, the capital disbursement this year will also be taken into account to calculate a bank's 2011 credit growth, according to the central bank.

The credit growth ceiling, bankers said, will affect their profits.

Meanwhile, the central bank has also ordered banks to limit loans for non-manufacturing sectors.

The leader of a State-owned bank in a meeting with the central bank last week said the current lending rate was already out of the reach of manufacturers, meaning lending to these clients could not rise significantly in short term.

"Banks with a high proportion of loans for non-manufacturing sectors will face lost earnings if they abruptly reduce the proportion," he said, adding the central bank should adopt a more flexible approach to help them out of the situation.

Nguyen Ngoc Bao, head of the Monetary Policy Department of the central bank, said the central bank had received credit growth plans submitted by banks, but most of them still set high credit targets which did not reflect the current conditions.

It will be so risky for banks to strongly increase credits this year when demand was not high this year. He said banks should reconsider their credit growth targets and re-register their plans with the central bank.

The central bank's Directive 01 issued on March 1 requires banks to decrease the proportion of loans for non-manufacturing sectors to 22 percent by late June and 16 percent by the end of the year.

By late 2010, the system's total outstanding loans were 2,300 trillion dong, so the additional outstanding loans this year should total less than 460 trillion dong.

The Saigon Times Daily - March 15, 2011