This seems to be a part of a trend where lending goals running up against risk-mitigating regulations are not forcing a rethink of those goals, but rather the regulations holding them back. A trend that could have significant economic implications.
The State Bank of Vietnam (SBV) will allow banks to exclude new loans for certain major projects being proposed by Vingroup, Masterise and Sun Group when calculating annual credit growth limits, according to VN Express reporting.
The list issued by the SBV has 18 items with a combined estimated value of about VND 752 trillion (US$28.54 billion).
This is a notable development in that credit growth limits were introduced in 2011 after a prolonged period of major inflation spikes.
Though correlation does not necessarily mean causation, their introduction has coincided with headline figure inflation averaging 3.2 percent since 2012 (its 2011 peak was 18.7 percent).
Maybe more importantly, they also serve, when demand for capital exceeds the supply, to encourage banks to be more selective with their lending, favouring better quality, lower risk projects.
This may be part of the reason why this change is being made, with many of the projects on the SBV’s list having questionable commercial viability.
For example, the Rach Chiec National Sports Complex, in particular, includes a sports stadium with 65,000 to 75,000 seats. However, Vietnam’s main soccer league, the V League 1, reportedly had an average audience attendance at each game of just 6,000 people over the 2023-2024 period.
The Ben Thanh-Can Gio railway is a 54-kilometre high-speed railway project, with just two stations, worth around VND 87 trillion (US$3.3 billion). Vietnam has no high-speed rail to speak of, and the project lead, Vingroup, has no track record in high-speed rail development. It’s also already heavily leveraged with a debt-to-equity ratio at the end of the first quarter of this year of nearly 7 to 1.
Of course, the argument is that these are nation-building projects that will produce non-financial benefits. There are also other measures, like capital adequacy ratio (CAR) and liquidity requirement regulations, that could still prevent banks from lending for these projects even if the credit limit is removed.
This does, however, add to a growing list of policy moves that have made it easier for banks to expand lending.
For example, earlier this week, a limit of using 30 percent of short-term deposits for long-term lending was increased to 40 percent.
Last month, the SBV also announced that 20 percent of State Treasury term deposits at several state-owned banks could be counted in loan-to-deposit ratio calculations, up from zero previously.
The point being that this seems to be a part of a trend where lending goals running up against risk-mitigating regulations are not forcing a rethink of those goals, but rather the regulations holding them back. A trend that could have significant economic implications.