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Careful eyes to insure banking system’s health
The government will strengthen monitoring of the banking system and financial institutions to avoid system risks and a possible financial crisis.
The words were delivered by Vice Minister of Finance, Tran Xuan Ha when commenting on the current financial crisis in the United States. “For the financial, credit and stock markets, the government will not directly interfere but focus on strengthening the function of monitoring local banks and financial institutions to prevent a crisis,” said Ha.
Since early this year, the economy has been in a tailspin. Continent-high inflation and a lack of liquidity at local banks are at the top of the list of problems facing what was one of Asia’s brightest prospects. Inflation in the first nine months of the year stood at 21.87 per cent. Analysts blamed hot credit growth at local banks over the last two years as a key driver of the problems.
In 2006, credit growth hit 37 per cent, and spiked to 53 per cent last year. Rapid growth of the property and stock markets led to cash being pumped in through mortgages, creating “bubble” markets. After the government tightened monetary policy and capped credit growth at 30 per cent, most banks scrambled to find ready cash, and were forced to rely on the interbank market.
“It is important to raise the quality of home credit through controls and close monitoring of home loans by commercial banks and other credit institutions to ensure system safety,” Ha said. Donald Hannan, managing director and head of Citigroup Global Markets’ economic and market analysis, said closely monitoring credit growth was needed to avoid a financial crisis in Vietnam.
He said the crisis in the United States and European countries had not affected Vietnam yet but it was essential for the government to strengthen monitoring of the banking system and financial companies although some good signs for the economy have shown in recent months like slowdown of consumer price index and large amount of foreign investment capital flowed in the country.
However, Deputy Prime Minister Nguyen Sinh Hung in a speech at a Vietnam Economic Forum held in Hanoi late last month said the government was aware that the recently-gained results of inflation control and macroeconomic stabilisation were simply the initial ones and the economy still faced many difficulties and challenges in the coming time.
He affirmed that the government would continue to consistently tighten monetary and financial policies to stabilise the macroeconomic situation, especially attend to the flexible use of such instruments as the interest rate and reserve requirement from banks.
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