Speaking to Saigon Investment about the credit room, Dr. HO QUOC TUAN, University of Bristol, UK said that the world has gone through several periods of crisis as it is currently happening today . The general lesson that can be learned from the use of lines of credit is that many loans will turn into non-bank loans, so it is more difficult to monitor. When you borrow from banks, there are capital adequacy rules in addition to many other regulations. When using the credit tool, the goal is not clear and it is not easy to set precise limits.
JOURNALIST: – Sir, what do you think of the opinion of the State Bank of Vietnam that if Vietnam removes the credit limit, banks will rush into the credit markets, which will then lead to higher rates of interest to mobilize and lend, thus affecting the macro currency?
Dr. HO QUOC TUAN: – That is not true at all. Because when the Covid-19 pandemic happened, or even before the pandemic, central banks were not naive to think that by simply applying Basel standards to the banking system, they could control everything.
Therefore, they combined common management standards with a stress test. When they saw the risks in the economy and they didn’t want credit to rise too steeply, or when they wanted to control inflation to the desired level, they put those cases in the test tool of resistance and gave the level of capital adequacy of the bank. This tool will calculate itself a hidden line of credit on a more quantitative, objective, transparent and marketable basis. That is, the central bank does not have to provide an administrative credit limit, but a scenario that contains an assumption about the rate of credit growth.
For example, if the central bank wants credit growth at 14% to control inflation, it will build that limit into the stress test tool and signal the growth indicators to the market. With such a stress test, if banks fail to meet the capital adequacy ratio, banks are required to increase their capital or stop lending. When applied like this initially, commercial banks can offer a very high credit growth plan for themselves, but after a few stress tests, they will realize that they cannot grow as high as they want. want because they will hit the stress test wall and have to adjust the business plan accordingly.
By doing so, the State Bank of Vietnam will not need to raise administrative issues to create a request mechanism. Commercial banks themselves will gradually get used to planning ahead because as mentioned they will see that if credit growth is too fast it will hit the stress test wall. At the same time, the bank will take the initiative to plan, instead of just lending and then waiting for the State Bank of Vietnam to remove it, such as waiting for the current credit limit. To make it easier to understand, just imagine that on a moving highway, you can’t just hit an obstacle and hope the car won’t roll. We need to adjust the coefficient so that the running speed is controlled.
– Sir, if the stress test is applied, how will the small commercial banks be affected?
– The current way of granting credit limits is to split the pie evenly so that small banks always have a credit limit to operate. For example, banks in good health are granted a credit limit of 14%, and banks in bad health also receive 5% to 7%.
When performing stress tests, smaller banks may not meet their targets and may not expand credit or may even have to reduce the size of their assets. But it’s something we have to accept because the allocation of capital in the economy is extremely important. One bank may have credit growth of up to 20% but not be granted a sufficient limit, while another bank that cannot grow credit is still granted a credit limit, i.e. i.e. an inefficient allocation of capital. Weak banks are still weak because they may still have limits on credit growth.
In my opinion, removing the credit limit is necessary, but not immediate, and should be put on a roadmap. For example, the State Bank of Vietnam announced that it would remove the credit limit within five years. During these five years, the State Bank of Vietnam will instruct commercial banks on how to stress test and solve bank weaknesses, and also deal with weak banks, with regulations on data verification and responsibilities. If there is no specific time, no one will do it.