Vietnam’s Central Bank Looks to Boost Loans Amid Slowing Growth

The State Bank of Vietnam is seeking to lower loan rates to help companies as the economy shows signs of slowing growth tied to a slump in exports and construction.

(Bloomberg) — The State Bank of Vietnam is seeking to lower loan rates to help companies as the economy shows signs of slowing growth tied to a slump in exports and construction.

The central bank said Friday it has asked commercial lenders to lower loan rates to support firms. The call comes within weeks of the SBV cutting a key rate to reduce the cost of funds for banks. 

Loans in the Southeast Asian country in the first quarter rose 2.1% as of end-March from end-December levels, according to the regulator. That’s slower than the 5.97% expansion seen in the same period last year, based on central bank data on its website. Lower credit offtake risks throttling economic activity, at a time when gross domestic product growth already slowed to 3.2% in the first quarter from 5.92% in the last quarter of 2022. 

The monetary authority will “manage bank credit with reasonable growth and into areas that can help boost businesses,” according to a statement from SBV in Hanoi on Friday, keeping this year’s credit growth target of 14% to 15%. Meanwhile, policymakers will keep a close watch on inflation, which slowed for a second straight month in March, it said.

Vietnam’s trade-dependent economy, which produces everything from Samsung Electronics Co. smartphones to Nike Inc. sneakers, is facing headwinds amid falling global demand for goods. Orders for textiles and footwear plunged by 70% to 80% in the first quarter. Meanwhile, the government’s anti-corruption campaign has reverberated across the economy, particularly the property sector, causing weakness in construction. 

The SBV’s call was in line with the prediction of Ruchir Desai, co-fund manager of the AFC Asia Frontier Fund, who had earlier said that there was a greater possibility that the central bank will nudge banks to reduce lending rates instead of cutting its benchmark rates again so soon. 

–With assistance from Nguyen Kieu Giang.

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