Lowering interest rates is not the only tool to stimulate credit.

Lowering interest rates is not the only tool to increase credit growth. And credit growth as targeted at 12-14% is not as important as achieving the quality and substance of credit.

Dr. Nguyen Tri Hieu, a finance and banking expert, confirmed this to To Quoc Electronic Newspaper before the State Bank of Vietnam (SBV)'s move to lower deposit and lending interest rates starting from October 29.

Lowering interest rates is not the only tool to boost credit growth. Illustration photo

Lower interest rates create only a small stimulus

On October 29, the ceiling interest rate on short-term savings (under 6 months) was reduced from 6% to 5.5%. At the same time, lending interest rates for 5 priority sectors were also reduced from 8% to 7%. Dr. Nguyen Tri Hieu said that this move will affect the exchange rate as well as the mobilization of banks.

When the difference between VND and USD interest rates narrows, people will feel that saving VND is not profitable and they will switch to saving in USD. Therefore, the USD exchange rate will be pushed up.

However, Mr. Nguyen Tri Hieu said that the ability to attract capital of this channel is not high because the US dollar is currently less volatile and the ability to generate profits is low. In addition, the State Bank has a large amount of foreign exchange reserves, so if the US dollar price is affected, the State Bank still has enough resources to intervene.

This expert also predicted: "There will not be any major shift from savings deposits to investments in stocks, real estate or gold... Even though the mobilization interest rate has decreased, the current interest rate is not low, so it still encourages deposits from people."

And according to this expert, saving is still the safest channel.

Credit growth: Need more substance than numbers

According to the State Bank of Vietnam, as of October 24, lending to the entire system increased by 7.85% compared to the end of 2013. Thus, there are only two months left until the end of the year, but the credit growth target has only been achieved more than half way.

Although agreeing with the State Bank's policy, Mr. Nguyen Tri Hieu said that lowering interest rates is only one of the tools to promote credit, not the only tool.

“The state of the economy is reflected in inflation. Currently, inflation is at 2.36%, indicating low aggregate demand. Such a low inflation figure shows that the economy is very stagnant, not because we have good control over inflation,” Mr. Hieu said.

Therefore, this expert believes that the important thing at this time is not to force the credit target to be set at 12-14%, but the important thing is the quality of the credit.

“A credit growth rate of 8-10% is enough. We do not necessarily have to chase after numbers. The goal is the quality and substance of credit. Credit must be poured into necessary areas, especially production and business, important and effective projects of the Government…”, economic expert Nguyen Tri Hieu analyzed.

And to promote the effective operation of enterprises, Mr. Nguyen Tri Hieu said that it is necessary to develop the credit guarantee fund more strongly. This fund will support enterprises to borrow capital effectively in cases where enterprises cannot borrow capital from banks due to binding conditions.

According to Mr. Hieu, in Vietnam this type of fund has been operating, but is scattered in localities with very low charter capital. The operation of the capital is not professional. Therefore, Mr. Hieu thinks that it is necessary to concentrate the fund in the central and large cities for easy management, avoiding causing trouble for businesses.

Sharing the same view, economic expert Nguyen Minh Phong commented that to help businesses operate more effectively, along with lowering interest rates, other support from the Government is still needed, such as expanding mortgage conditions, loan terms, reducing inventory, etc.

And the important thing is whether the business has a lot of demand for loans or not?

“The difficulties of enterprises are not only capital but also many other issues. Therefore, high credit growth is not always good, but what is important is the nature of credit? In my opinion, credit quality depends on enterprises and banks. Enterprises must improve their competitiveness, otherwise, if they can borrow capital but do not operate effectively, they will be discarded. On the bank side, they should not blindly lend and need to have measures to prevent moral hazard,” Mr. Nguyen Minh Phong emphasized.

According to toquoc.gov.vn