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SBV Governor voices determination to maitain safe and sound Banking Industry
Governor Nguyen Van Giau of the State Bank of Vietnam (SBV) has granted an interview to the Banking Times on the occasion of the New Year of the Buffalo. Following is the full text of the interview.
For the previous years, “flexibility and prudence” was the flag ship in monetary policy management of the SBV, but since late 2007, ”tight monetary policy management” has become the leading standpoint of the SBV . Do you agree if this is the most fundamental change in monetary policy management on the part of the SBV over the past year?
You are quite right! The global economy, in 2008, moved in a complicated and unforeseeable direction. Specifically, commodity price rocketed in early 2008. However, since last September 15 the financial crisis took place in the United States and then spread globally, resulting in economic recession in many developed countries and negative impact on the Vietnamese economy. In this context, the SBV has managed the monetary policy in a tight but flexible manner, thus contributing to successfully curbing inflation after a short period of time, putting trade deficit under control and maintaining proper economic growth rate. Monetary policy instruments have been utilized and managed comprehensively and consistently by market forces and under the state regulation; the amount of cash in circulation has been under control with a reasonable pace of credit extension, gradual interest rate management and a relatively stable exchange rate. These moves have clearly signaled the policy orientation in order to regulate economic activities of entities and individuals. In addition, the liquidity of credit institutions has been secured and their operations have continuously grown.
The year 2008 witnessed a record level of interest rate adjustments. What do you think about this assessment?
In 2008, the SBV applied the base interest rate mechanism and managed the interest rates actively and flexibly to regulate the money market in line with the macro-economic targets and conditions and to ensure the safety of the banking system. In the first 7 months of 2008, the SBV implemented a tight monetary policy focusing on curtailing inflation. Accordingly, the base interest rate increased from 8.75% to 12% and to 14% p.a; the refinancing rate was adjusted from 6.5% to 7.5%, to 13% and to 15% p.a; the rediscounting rates ranged from 4.5% to 6%, to 11% and to 13% p.a. Later in the year, due to the impact of the global financial and economic crisis, monetary policy was managed flexibly to proactively prevent the domestic economic decline. Therefore, the base interest rate decreased from 14% to 13%, to 12%, to 11%, to 10% and to 8.5% p.a; the refinancing rate declined from 15% to 14%, to 13%, to 12%, to 11% and to 9.5% p.a; and the rediscounting rate was cut down from 13% to 12%, to 11%, to 10%, to 9% and to 7,5% p.a.; resulting in remarkable reduction of the interest rates in the market. The common lending rates of commercial banks are nowadays ranging between 10%-12% p.a, hence facilitating enterprises to get access to bank loans while the mobilizing rates of credit institutions have gradually declined in line with the capital demand and supply and the harmonization of interests of depositors, credit institutions and borrowers.
As you may know, the market has positively responded to any policy move by the SBV. What is the reason for this positive response ?
In 2008, the SBV managed monetary policy instruments to regulate the money market and signaled the directives of the Government. The solutions of the SBV in managing a tight but flexible monetary policy became important economic information and indicator in the financial market, which was closely and promptly watched, followed, forecasted and reacted by enterprises, individuals and foreign and domestic investors to make their own decisions on investment, savings and consumption, especially when the SBV adjusted monetary policy instruments. These important outcomes reflected the crucial role and positive effects of monetary policy in curtailing inflation and regulating macro-economy. The main reason lies in the fact that the management solutions were in line with the objectives of macro-economic development and practical needs of the society.
With the solutions undertaken by the Government and the SBV, can we feel secured about the sustainability of the Vietnamese banking sector right at the time when a number of giant financial groups of the leading economic powers in the world could not avoid bankruptcy?
The global financial crisis and economic recession have negatively affected and created many challenges to the domestic economy and the whole banking system as well. Up to now, credit institutions have operated safely in good liquidity without any one in danger of insolvency. Additionally, most of the credit institutions have maintained their capital adequacy ratios above the minimum level of 8% with sufficient liquidity, revenue surplus and expected non-performing loans ratios between 3 and 4% of the total credit outstanding. The confidence of businesses and individuals in banking operations has been highly up with the evidence of a continuously increasing amount of mobilizing capital; as a result, saving deposits increased by over 30% and credit extension up by about 21% in 2008. In the coming time, the SBV and credit institutions will take active measures to overcome difficulties and to maintain a stable and developing banking system in spite of complicated movement of the international and domestic economies.
The SBV Governor has been elected as the first time-ever Chairman of the Meetings of the Board of Governors of the International Monetary Fund (IMF) and the World Bank (WB) at the Annual Meetings of these two institutions in Istanbul in 2009. As such, what have you planned to do for the success of these Meetings ?
That Vietnam has been elected to chair the 2009 Annual Meetings of the IMF/WB Board of Governors with high consensus of the member countries reflects the trust and appreciation of the international community for the achievements obtained by Vietnam in its renovation (Doi Moi).
Being assigned with the first time-ever Chairmanship at the Meetings of the Board of Governors is not only an honor but also a very important task for the SBV. In the coming time, the SBV will actively coordinate with the IMF/WB Annual Meetings Secretariat and the host country of Turkey to prepare relevant documents and work out the agenda, plans and logistics arrangements for the Meetings. In addition, I will get prepared for such noble mission and an opening speech at the Meetings of the Board of Governors to be attended by the IMF Managing Director , the WB President, and Ministers of Finance and Central Bank Governors of 185 member countries.
What policies will the SBV continue to pursue vis-à-vis agricultural and rural development and farmers in accordance with the Resolution of the 7th Plenum of the 10th Central Committee of the Communist Party of Vietnam (CPV) ?
By thoroughly grasping the directives and orientations of the Party and the State, the banking sector has over the past years paid special attention and provided sufficient financial investment to agricultural and rural development. A large number of policies and solutions of banking credit to agricultural and rural development have been issued and effectively implemented, thus making an active contribution to socio-economic development, poverty reduction and improvement of the people’s livelihood.
In order to implement the Resolution of the 7th Plenum of the 10th CPV Central Committee on agricultural and rural development and farmers, in the coming time the banking sector will continue to increase investment credit for agriculture and rural area and extend loans directly to farming households and farm owners to help them produce commercial agricultural commodities, especially those for export. The banking sector will surely provide sufficient financial resources with proper interest rates for the purchase of all the agricultural products, namely rice, coffee, sea food, etc. for export. Moreover, the Vietnam Bank for Social Policies will continue to extend policy-based loans for poverty reduction and other programs of the Government in relation to agricultural and rural development and farmers.
The SBV is currently drafting a Government Decree on credit in service of agricultural and rural development, including micro-financial operations. This draft decree is expected to be submitted to the Government for approval within 2009.
The international and domestic economies are forecasted to face more difficulties in 2009 than last year. What measures will the SBV take to contribute to preventing economic downturn while ensuring prudent development of the banking industry and macro-economic stability ?
Exactly, recent forecasts said that in 2009 the world economy still undergoes a difficult period , since the impact of the financial crisis has caused the global economic recession. Against this background, the domestic economy is likely to face more difficulties and challenges. However, the National Assembly and the Government still aim with high determination at continuing to curtail inflation, stabilize macro-economy and maintain the economic growth rate of around 6.5 per cent.
This year, the SBV should focus on the task of contributing to meeting the above-mentioned macro-economic objectives while maintaining a safe and sound banking sector. These are very important tasks in the context of the highly complicated and unforeseeable economic, financial and monetary development. In order to successfully carry out these tasks, the SBV will have to take the following synchronous measures :
- To manage the monetary policy in close association with the objectives of preventing economic downturn, keeping inflation at an appropriate rate, stabilizing the money market and maintaining a safe and sound banking industry against the background of international financial fluctuation. To this end, the SBV will continue to manage monetary policy instruments in a flexible and synchronous manner; to flexibly and harmoniously regulate the interest and exchange rates; to enhance close coordination of the monetary, fiscal and other macro-economic policies to bring about the consistent effects towards the common goals; to improve statistic and forecasting operations in order to promptly respond to the domestic and international economic and monetary fluctuation; and to ensure the liquidity of credit institutions.
- To take synchronous measures to maximize internal and external fund mobilization so as to meet the capital demand of the whole economy; to actively control the pace of credit extension together with strict control of credit quality and a more proper change of credit structure; and to increase financial resources for production, export, agricultural and rural development and small and medium enterprises (SMEs).
- To solidly promote effective operations of credit institutions; to push forward modernization of banking technology and the payment network; to continue equitization of the state-own commercial banks under the approved plan of the Prime Minister; to strengthen the banking governance, especially risk management; to consolidate and improve internal control and audit of credit institutions; and to continue strengthening and developing the network of the People’s Credit Funds in line with Instruction No.57-CT-TW of the CPV Political Bureau.
- To continue renovating and enhancing banking supervision and monitoring; to improve early detection and risk warning in banking operations. To conduct supervision and inspection visits with a focus on compliance with the prudent regulations and potentially risky areas of companies and enterprises under credit institutions. To strictly deal with all the offences against laws and regulations in monetary and banking operations in order to keep the discipline and effectiveness of the state management. To continue studying and improving the prudent regulations on banking operations more in line with international practices and standards.
- To further promote international cooperation aimed at heightening the role and position of Vietnam in the international financial community. To get well prepared for taking up the Chairmanship of the Meetings of the IMF/WB Board of Governors this year.
- To promote banking information and communication in order to provide guidance to and enjoy the support of the society for monetary and banking operations.
PMH -VMH – VTH - TLH
SBV
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