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Credit institutions continue to maintain safe and effective operations
Deputy Governor Nguyen Dong Tien of the State Bank of Vietnam (SBV) has asserted that one of the priorities in SBV’s monetary policy management in the coming time is aimed at maintaining safe and effective operations of credit institutions. This statement was made by the Deputy Governor in his recent interview for the SBV Website. Following are excerpts of this interview.
What have been the effects of monetary policy management measures of SBV since the beginning of this year ?
The American financial crisis has expanded to other countries, hence causing a global economic depression, which has indirectly affected Vietnam with clear evidence of domestic economic decline.
During the first months of 2008, SBV had implemented a tight but flexible monetary policy, aiming at curtailing inflation, stabilizing macro-economy and ensuring sustainable growth. As a result, since June , inflation has been in a downward trend, especially with the consumer price index (CPI) increasing by 0.18% in September and slightly decreasing by 0.19% in October as compared to the previous months.
In regard to banking activities and the money market, the total liquidity and credit operations have been managed in accordance with the inflation combat objectives. In the first ten months of 2008, the total liquidity increased by 10.59%, and credit outstanding by 19.6%, lower than the year on year rates of 36.97% and 37.73% respectively.
However, in the context of improved macro-economy and declining inflation, SBV has managed the monetary and exchange rate policies in a flexible manner on the basis of supply and demand in order to provide liquidity to commercial banks and to promote economic growth while mitigating the impacts of the global financial crisis.
It is notable that the SBV Governor issued Document No.9776/NHNN-CSTT on November 3, 2008 to guide credit institutions to take certain measures on credit operations and interest rates. Under this Document, credit institutions should give priority treatment to export and import of essential commodities, agriculture and rural development, small and medium enterprises (SMEs), and effective projects. In addition, credit institutions should also restructure their loan maturities in compliance with regulations set by the Governor in Decision No.783/2005/QD-NHNN of May 31, 2005.
These policies have positively contributed to curbing inflation, stabilizing macro-economy, maintaining a sustainable growth, and bolstering confidence of domestic and foreign entities, individuals and investors. We expect that Vietnam will be able to obtain a relatively high GDP growth rate of 6.5%-6.7% for the whole year 2008.
What is your opinion about the measures taken by SBV recently, especially the consecutive reduction of the prime interest rate?
Since October 21, SBV has cut the prime interest rate twice down to 12% p.a. This decision has been carried out in parallel with other measures, namely the reduction of the refinancing rate to 13% p.a. and the rediscount rate to 11% p.a. while decreasing the reserve requirement level by 1% for VND and 2% for foreign currencies. These solutions aim at reducing the cost of commercial banks and increasing funds and foreign currencies for the market so as to facilitating a decrease in borrowing and lending rates and easing off pressure on VND depreciation.
SBV has managed exchange rate in a flexible manner based on market supply and demand, and widened the exchange rate trading band of US$/VND twice from ± 0.75% to ± 2% and most recently to ±3%. This change will help exchange rate to be adjusted more flexibly, and to practically reflect the foreign currency supply and demand of the market while ensuring sustainable and proper economic growth.
The cut in the prime rate and the other aforesaid policy actions have brought about positive impacts on the economy, helping to reduce both VND mobilizing and lending rates of credit institutions. Most of the state-owned commercial banks (SOCBs) are quoting their lending rates at 15% to 16% p.a. while joint – stock commercial banks have already started to reduce their lending rates to support enterprises and households to maintain and expand their business.
Generally speaking, the money and foreign exchange markets and banking operations remain stable, liquidity is in surplus, and fund mobilization and credit operations continue to rise at a reasonable level. In addition, no commercial bank is at risk of insolvency, and capital adequacy ratio is commonly above the minimum rate of 8%.
What are the measures to be followed up by SBV to implement the Government’s objectives of controlling inflation and promoting economic development?
Under the Government’s guidance, in the remainder of 2008, ministries and provinces should continue to strictly implement measures on curtailing inflation, stabilizing macro-economy, maintaining social protection and sustainable development while proactively preventing the risk of economic decline. In this context, SBV will continue to implement the tight but flexible monetary policy via open market operations (OMOs) and other instruments in order to assist commercial banks to maintain high liquidity, to reduce the mobilizing and lending rates step by step, and increase credit to the economy.
SBV is committed to taking proper measures to ensure a rational exchange rate regime in compliance with the demand and supply of the foreign currency market.
SBV has also directed credit institutions to strictly implement SBV’s instructions set in Instruction No.05/2008/CT-NHNN on October 9, 2008 on measures to ensure prudent and effective operations of credit institutions, to closely supervise operations of credit institutions to ensure solvency and to stabilize the foreign exchange market.
SBV
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