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SBV reports on banking peformance in 2008 and directives in 2009
SBV reports on banking peformance in 2008 and directives in 2009 as follows:
I. Results of banking perfomance in 2008
1. Managing a tight but flexible monetary policy in line with the objectives of curbing inflation, maintaining economic growth and securing social protection.
1.1. Taking decisive and consistent measures on monetary tightening in early 2008 with the aim of effectively controlling inflation and stabilizing macro-economy:
Under the instruction of the Government, right from the beginning of the year, the State Bank of Vietnam (SBV) actively took several decisive and consistent measures to effectively curtail inflation and stabilize macro-economy as follows:
- Proactively withdrawing cash in circulation in order to strictly manage the pace of total liquidity and credit outstanding while timely extending short-term loans to those credit institutions in face of liquidity problem.
- Issuing decision on the VND mobilizing cap at 12% p.a from February 26 to May 18. Starting on May 19, the mechanism of the base interest rate management was changed in accordance with the Law on the State Bank of Vietnam and the Civil Code. Accordingly, credit institutions set their interest rates not to exceed 150% of the base interest rate announced by the SBV from time to time; and at the same time, the base interest rate and other interest rates were gradually increased in line with the objective of strict monetary policy amangement.
1.2. Continuing to control inflation but to flexibly manage monetary policy to stabilize macro-economy and proactively prevent the danger of economic downturn in the second half of the year.
On the basis of the positive results in macro-economy and inflation control, from July to the end of the year, the SBV eased monetary policy step by step through flexible measures to promote production and business, and actively prevent economic decline as below :
- Flexibly adjusting the interest rate of reserve requirements and the SBV compulsory bills in line with the objective of monetary policy managment; and gradually decreasing the base interest rate and other interest rates in the downward trend.
- Gradually reducing the reserve requirement ratios, and permitting credit institutions to use the SBV compulsory bills in refinancing transactions with the SBV and to make prepayment if needed.
1.3. Flexibly managing the exchange rate by market forces so as to promote export and restrict trade deficit.
During the year, the domestic foreign exchange market fluctuated back and forth due to unstable cash inflow, trade deficit hike, market sentiment and speculation. In this context, the SBV took flexible measures to stabilize the forex market, to promote export and to restrict trade deficit as follows:
- Gradually widening the trading band for the US$/VND exchange rate from ±0.75% to ± 3%; and managing the average inter-bank exchange rate in line with the foreign currency supply and demand, and the objectives of promoting export and limiting trade deficit.
- Closely coordinating with the Ministry of Industry and Trade to control trade deficit; and properly intervening in the foreign exchange market in accordance with the objectives of curbing the liquidity pace while ensuring international reserve increase, balancing foreign exchange demand and supply, and meeting the essential foreign exchange requirements for the economy.
- Further supervising and monitoring the implementation of the foreign exchange regulations; amending or promulgating several regulations on foreign exchange management, expecially overseeing the foreign exchange agents to prevent speculation and illegal trading in the parallel market.
Additionally, the SBV timely developed an Action Plan on securing a safe and sound banking system and submitted it to the Cabinet for approval in order to contribute to stabilizing macro-economy and mitigating the impact of the global economic reccession.
2. Meeting sufficient capital demand for proper economic growth rate
In order to achieve a proper economic growth rate while conducting a strict monetary policy, the SBV tool several flexible and consistent measures with the aim of facilitating production and business, and closely monitoring credit quality and scale as follows:
- Directing credit institutions to adjust their business plans and credit structure in line with the national and sectoral guidelines and policies of socio-economic development while closely monitoring credit quality; providing loans to priority customers of production, export and import of essential goods, agriculture and rural development, small and medium enterprises (SMEs), and feasible investment projects; and extending concessional credit to such policy beneficiaries as poor households, students and others.
- Tightening lending conditions and controlling the total credit outstanding and the discounting of valuable papers for securities trading not to exceed 20% of the charter capital of credit institutions; and issuing new mechanism of lending in foreign currencies applicable to credit institutions to provide foreign currency loans only in neccessary cases in order to mitigate dolarization.
- Instructing credit institutions to provide loans to the production and business sectors in face of difficulties such as oil import/export, urgent power plan projects, garments, purchase of commercial rice and cat fish in the Mekong Delta, coffee sonsumption in the Central Highland, and the natural disaster and epidemic-hit areas…
- Establishing the Special Working Teams to resolve difficulties faced by SMEs in their credit relations with credit institutions in Ho Chi Minh City and Hanoi.
* Some monetary and credit outcomes in the year:
- Total liquidity and credit outstanding were estimated to increase by 16%-17% and 21%-22% respectively as compared to those at end 2007. The average inter- bank exchange rate increased by 5.4% and the exchange rates of commercial banks increased by 8%-9% as compared to end 2007.
- The maximum lending rate of credit institutions decreased speedily in the final months of the year from 23%-24% p.a. to 12.75% p.a. with the lowest lending rate being 8.5% p.a..
- The growth of lending for deffirent sectors was as follows: the non-state sector by 35%-37%; the state-owned enterprises by 12%-14%; export by 35%-37%;
production by 34%-36%; agriculture and rural development by 30%; and poor households and other policy beneficiaries by 40%-42%.
3. Organizational restructure and strengthening of banking supervision
3.1. Restructuring organization and strengthening banking supervision:
During the year, the SBV proceeded the implementation of the Plan of organizational and operational reform of banking supervision with the focus on establishing the Financial Supervision Agency; improving the legal framework, operational mechanism and professional procedures of banking supervision; modernizing technology and the information system and promoting capacity building for banking inspectors with positive results. Notably, the Government approved the establishment of the Financial Supervision Agency under the SBV.
3.2. Enhancing banking supervision and inspection
In the context of complicated developments in the foreign and domestic economies, the SBV enhanced the banking supervision and inspection to secure the safe and sound banking system. Following are several specific measures :
- Issuing the instruction on enhancing the SBV supervision and inspection as well as the governance of credit institutions; and ensuring prudent operations of credit institutions to prevent potential risks caused by the global financial crisis.
- Accelerating operational supervision and management of credit institutions, especially those joint-stock commercial banks originating from the former rural joint- stock commercial banks in 2006-2007, and those credit instituttions failing to meet the regulated charter capital requirement or in face of liquidity problem.
- Conducting more than 550 planned supervision visits, about 400 unexpected supervision visits and over 250 inspections, including 5 extensive supervision missions in such highly potential risks as investment lending, securities trading and real estate loans, consumer lending, compliance with of operational interest rate regulations, credit quality management so on and so forth in order to timely resolve wrongdoings and prevent risks.
- Setting up the hot lines in 4 SBV departments to closely watch and timely resolve issues related to the banking activities through individual and enterprise communication. The processing outcomes of these cases were highly appreciated by the public.
4. Accelerating the process of restructuring and improving the operational capacity and competitiveness of credit institutions
In sptie of numerous difficulties, the process of restructuring and improving the operational capacity and competitivenessof credit institutions obtained positive results as follows:
- The Vietnam Bank for Foreign Trade officially changed itself from the wholly state-owned commercial bank into the Joint-Stock Commercial Bank the State holding the major stake of the Bank’s charter capital. The Vietnam Bank of Industry and Trade (Vietinbank) successfully conducted the initial public offering ( IPO) on September 25,2008. The others SOCBs, except the Vietnam Bank for Agriculture & Rural Development (VBARD), have speeded up their equitization plans.
- SBV granted licenses to set up 3 local joint-stock commercial banks, three wholly foreign owned banks, 4 foreign bank branches, 3 wholly foreign owned finance companies, 3 local finance companies, and 29 local People’s Credit Funds.
- Under the SBV guidance, all those commercial banks with charter capital below VND 1 trillion accelerated their plans to increase their charter capital up to the minimum level of VND 1 trillion by December 31, 2008. Up to now, most commercial banks have increased charter capital as planned and the rest are in the process of completing the administrative procedures.
- Credit institutions focused on formulating and strengthening the internal control, internal audit and credit rating systems in order to enhance their risk management capacity to gradually meet the requirements of development and international integration.
- To solve the difficulties in perfomance of the People’s Credit Funds, under the appvoval of the Prime Minister, in early December , SBV decided to apply the lending cap of 165% of the base interest rate in VND for the loans of these funds to their customers.
5. Promoting modernization of the banking system and non-cash payments
Bank Modernization and non cash payment gained remarkable progresses in the year. It is interesting to note that the payment systems of the banking sector continued to be equipped with advanced banking technology with the aim of providing extensively and speedily automatic services to customers, upgrading professional processing programs to meet the management requirements of SBV and expanding business and services of commercial banks.
Especially, on November 18, 2008, The State Bank of Vietnam (SBV) decided to officially put into operation the Expanded Inter-Bank Payment System which is able to conduct two million settlements per day as compared to the average daily amount of 35,000-40,000 settlements of the previous inter-bank payment system under the First Payment System and Bank Modernization Project. The system has contributed to expanding and increasing the scale as well as the quality of payment services and capital circulation of the economy.
- The Project to build up an unified card switching center and implementing the plan of restructuring the Vietnam National Financial Switching Joint-Stock Company (Banknetvn) has been acceleratted. Two biggest bank card alliances, namely Banknetvn and the Smartlink Card Service Joint-Stock Company (Smartlink), have successfully connected to 65% out of the total number of ATMs nationwide.
- The bank card service and the number of private accounts saw strong growth in 2008. Up to the end of the year, there were about 15 million private accounts, an increase of 36% as compared to the end of 2007, and around 13.4 million bank cards, an increase of 46% against the end of 2007, with 142 bank card brands belonging to 39 issuing institutions. The infrastructure for bank card market developed continuously. The banking system installed 7,051 automatic teller machines (ATMs), an increase of 2,200 ATM in comparision to 2007.
- The intermediary agencies of bank card issuers launched their supporting services to the customers and started to add more values and scale of their services, contributed to accelerating the growth of electronic transactions in the coming time.
Thanks to the development of non-cash payments, cash in circulation only accounted for 14% of the liquidity structure at the end of the year against 18% at the end 2007.
6. International cooperation promotion to heighten the position of Vietnam in the international monetary and financial community
Together with achievements of monetary policy management, the year 2008 indeed marked significant contribution of the SBV as the presentative agency of the Vietnamese Government at international monetary and financial institutionss, and the role of SBV in expanding the relationship with multilateral and bilateral partners.
In regard to international cooperation, the year 2008 witnessed the successful organization by SBV of important international events and its contribution to the enhancement of the role of Vietnam in general and the SBV in particular in international forums. Specially, one of the remarkable diplomatic events of the SBV was the successful hosting, for the first time, of the ASEAN Governor and Deputy Governor Meetings. Moreover, the SBV also made great achievement in enhancing the role of Vietnam on international forums of such institutions as the IMF, WB, and ADB. At the ADB Annual Meetings of the year, the SBV Governor successfully fulfilled his role as the co-chairman of the institution’s Board of Governors’ meetings. Then, at the IMF/WB Annual Meetings, the SBV Governor was again appointed as chairman of the IMF/WB 2009 Board of Governors’ Meetings, the highest position to chair the Board’s meetings in 2009.
Vietnam completed negotiations with the WB and ADB for 16 programs and projects totaling USD 1.7 billion, of which 8 projects financed by WB totaling USD 992 million, and 4 projects funded by ADB with the total value of USD 533.2 million; 5 other projects funded by ADB which were negotiated in 2007 totaling USD 1,396 million; additionally SBV signed 14 technical assistance memoranda of understanding with the total value of USD150 million.
7. Enhancing the effective information and communication
In implementation of the Government’s instruction on timely information and communication of measures of inflation control and financial and monetary policies as an official public channel for the population, SBV regularly provided to the mass media infomation about monetary and banking activities, and SBV’s policies; Secondly, SBV timely updated such information in the SBV website in both Vietnnamese and English, thus helping the public understand the right directives and perfomance of the banking sector and raise their vigilance against erroneous rumors. Thirdly, SBV successfully launched its website in English, hence publicizing operations of the Vietnamese banking sector to people around the world.
The aforesaid achievements contributed to the success of curtailing inflation, stabilizing macro-economy, securing social protection, maintaining economic growth while minimizing the impact of the global financial crisis. Consequently, the SBV was awarded a Certificate of Merit by the Prime Minister in December 2008. On this occasion, the Vietnam Banks Association and other 6 commercial banks also received the Government’s Certificate of Merit.
II. The directives of the banking sector in 2009
(1)- To formulate and complete the drafting the Law on the State Bank of Vietnam, the Law on Credit Institutions, the Law on Deposit Insurance and the Banking Supervision Law to be submitted to the sixth session (November 2009) of the 12th National Assembly for comments. To study, revise and complete the regulations on foreign exchange, loan classification, prudent ratios… in line with international practices and standards and the practical circumstances in Vietnam. To formulate the credit policy in service of agriculture, rural areas and farmers in the spirit of the Resolution of the 7th Plenum of the 10th Central Committee of the Communist Party of Vietnam.
(2)- To utilize the monetary policy instruments in a consistent manner in order to bring into full play these instruments in monetary policy management. To closely align the management of the monetary policy with the fiscal policy and other macro- economic to enhance the effects of monetary policies in controling inflation and preventing economic downturn
(3)-To strictly control and monitor credit quality while ensuring credit growth in line with inflation control target.
(4)-To continue further renovating banking supervision.
(5)-To solidly develop and to promote efficient operations of credit institutions and to maintain a safe and sound banking industry.
(6)-To continue implementing the subprojects of the Project on “Non-cash payment development in 2006-2010 and its directives to 2020”.
(7)-To strengthen cooperation with other central banks and international financial institutions in order to attract financial resources and to make best use of technical assistance programs on advanced technology and management skills.
(8)-To successfully make arrangements for minting, and to balance supply and demand of cash in circulation to meed the requirement of the economy in terms of both value, and denomination structure and quality of cash in circulation.
(9)- To enhance information and communication on baking operations with focus on the monetary and credit mechanisms and policies, measures to ensure the safe and sound banking sector and to protect interests of customers.
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