Methods to define credit boom

Abstract

Bank credit growth is the increase in bank credit to meet the demands of the customers in the economy in a certain period. Credit growth enhances the economic growth by creating favourable macroeconomic conditions for the development of the economy. Credit growth enables banks to increase their total assets and as a result increases profit. However, according to IMF (2004), credit boom is the episode when credit growth is significantly high, endangering the financial stability and leading to financial crisis. In this paper, the authors summarise the popular methods used in defining credit boom and apply it to the case of Vietnam. Using HP filters to determine the trend of credit to gdp (CTG) over the period of 1995Q1-2014Q1, the authors find that Vietnam experienced 3 year credit boom from 2007 to 2010.