Vietnam credit-driven economy leads to internal risks

The Hanoitimes – Consumer financing is expected to grow at a double-digit rate for the next three years as households increase their spending. There exist key internal risks that is related to Vietnam’s credit-driven economy, stated the Viet Dragon Securities Corporation (VDSC).    Illustrative photo. A few days ago, the trade tension escalated once again as the US set 10% tariffs on US$200 billion of goods imported from China. Fundamental changes in the global value chains as well as financial markets’ volatility are stress-tests for emerging and developing countries’ macroeconomic stability.  With regard to Vietnam, there exist key internal risks although the resistance to external risks seems to be relatively because of a positive current account and low debt service in term of export of goods and services. The most important point is related to Vietnam’s credit-driven economy, implying a gradual increase of money supply (M2) in term of GDP, according to VDSC. Currently, Vietnam’s M2/GDP ratio hovers at 163.7%, the second highest compared with other regional countries. The ratios in Indonesia and the Philippines are at 40% and 67%, respectively. The credit cycle still determines the trajectory of GDP growth. Consumer financing is expected to grow at a double-digit rate for the next three years as households increase their spending. On one hand, such development gives ‘unqualified’ individuals access to credit because commercial banks and other financial institutions want to raise their profit margins.  On the other hand, there is a risk of over-indebtedness as Vietnam’s gross national saving… [Read full story]