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Press release on implementation of banking tasks in 2010 and directives in 2011
In 2010, the world economic recovery has varied from region to region, with a rapidly upward trend of inflation, complicated developments of the financial markets and negative impact of the debt crisis in Europe. The domestic economy has recovered in a relatively speedy and stable manner. However, the macro - economy has still faced many potential risks with high budget, trade and balance of payment deficits, and high inflation risk due to fluctuations in the world economy and internal weaknesses of the national economy.
The developments of the global and domestic economies have posed influences (Both positive and negative) on monetary policy management of the State Bank of Vietnam (SBV) and operations of the banking sector in 2010.
I. Implementation of the banking tasks in 2010
In order to implement the Resolutions of the National Assembly and the Government on the objectives of socio-economic development in 2010, the SBV has issued instructions and action plans on implementation of the monetary policy, conduct of safe and sound banking operations, inflation control, and active guidance and supervision aimed at ensuring the effective and efficient operations by the whole baning sector, in particular :
1. Taking measures of managing the monetary policy, exchange rate and foreign exchange policies in line with Resolutions No.18/NQ-CP and No.23/NQ-CP of the Government
- To manage the money supply by the means of monetary policy instruments in order to meet the liquidity demand of commercial banks and the economy, and intervening to reduce the common market interest rates , namely (1) reducing the reserve requirement ratio in foreign currency to 4% from 7% for below 12 month terms and to 2% from 3% for over 12 month terms, increasing resources for lending, reducing mobilizing costs, and stabilizing the exchange rate in line with macro-economic developments; (2) flexibly managing the open-market operations with the reasonable volume and interest rates; (3) cutting down the interest rates in the open market operations (OMOs) and foreign currency swaps; and (4) directly refinancing small-scale commercial banks in order to stabilize the money market;
- To increase refinancing for agriculture and rural areas, guiding commercial banks to provide VND loans with negotiable interest rates, and flexibly managing interest rates in combination with other measures to regulate the proper common interest rates. To flexibly manage interest rates of OMOs, the base interest rate (To keep the rate unchangeable for the first 10 months, and since November 5, 2010, to put it up by 1 percentage point p.a.); and coordinating with the Vietnam Banks Association to reach consensus among its member banks on the mobilizing interest rates in VND.
- To take measures to support agriculture and rural areas, and the economic stimulus package in accordance with the Government’s Resolution, with a focus on directing credit institutions to increase and improve the quality and efficiency of credit operations, to simplify lending procedures; and prioritizing loans for production, agriculture and rural areas, exporters, and small and medium enterprises (SMEs).
- To manage the exchange rate and take various measures in foreign exchange management in order to prevent the declining of the official foreign exchange reserves, control trade deficit and prevent risks of foreign currency liquidity and exchange rates: the SBV has depreciated the average USD/ VND exchange rate twice in the inter-bank market; stipulating the maximum mobilizing USD interest rate of 1% p.a for economic institutitons’ deposits with credit institutions; intervening in trading foreign currencies at a reasonable level to regulate supply and demand of foreign currency, to increase liquidity for the market demand and to provide adequate foreign currencies for importation of essential commodities in service of domestic production; directing credit institutions to extensively purchase foreign currencies of several state-owned economic groups and general corporations to increase the supply of foreign currencies for the market; and strictly controlling the foreign currency purchase, lending and settlement for importation in order to reduce trade deficit .
As far as the gold market is concerned, the SBV has taken additional measures to manage and regulate the market by instructing credit institutions to close down all the gold trading floors and make final accounting for overseas gold accounts; allowing gold import and export when needed; and issuing the Circular on restricting gold mobilization and lending by credit institutions.
In general, in 2010 the credit and money market has been relatively stable and operated in accordance with the requirement of socio- economic development
- By December 31, 2010, the banking sector’s total credit outstanding is estimated to increase by 29.81% as compared to end 2009, of which total VND lending increases by 25.3%, and the total foreign currency credit rises by 49.3%. Exchusive of the difference caused by the depreciation of the exchange rate and gold price rise, the total loan outstanding increases by 27.6%, of which credit in VND up by 25.3%, and foreign currency credit by 37.7%.
- By December 31, 2010, the total liquidity increases by 25.3% as compared to end 2009; and capital mobilization increases by 27.2%. Exclusive of the difference caused by the depreciation of the exchange rate and gold price rise, the total liquidity increases by 23.0%, and mobilization by 24.5%.
- Thanks to the negotiable interest rate mechanism and the flexbible measures of monetary policy management of the SBV, the mobilizing and lending interest rates by commercial banks have gradually decreased (By one percentage point). Currently, commercial banks are unanimously quoting the maximum VND mobilizing rate of 14% p.a, and the average lending interest rate of 15.27% p.a. The USD mobilizing and lending rates have increased by 0.5% percentage point p.a as compared with end 2009, and the current average mobilizing rate is 4.08% p.a, and the lending interest rate of 6.26% p.a.
- The forex and gold market has been gradually stable; the supply of foreign currencies has been significantly improved, and the exchange rate movements are in line with the objectives of encouraging exports, restricting trade deficit, and improving international balance of payment (As of December 15, 2010, the inter- bank average USD / VND exchange rate depreciated by 5.52% and the USD/VND trading exchange rate of commercial banks depreciated by 5.53% in comparison with end 2009). The domestic gold price is relatively close to the world gold price, and the gold price difference has been narrowed.
- The VND liquidity of credit institutions is in a relatively stable trend, just to ensure the settlement and reserve requirements.
2. Ensuring safe and sound development of credit institutions
SBV has continued to guide the implementation of many measures to enhance safe and sound operations of credit institutions, hence contributing to macro-economic stability by instructing credit institutions to further strengthen their financial capacity, governance, and develop modern banking services to meet the integration requirement; revising or issuing several regulations on safe and sound performance of credit institutions in line with international practices and standards and the practical condition of Vietnam; guiding and monitoring the recapitalization plan of credit institutions in accordance with Decree No. 141/2006/ND-CP; submitting recommendation to the Prime Minister for approval of extention of the recapitalization deadline until December 31, 2011; and promoting supervision of monetary and banking operations and promptly dealing with all violations.
3. Promoting non-cash payment
During the year, the SBV has set the criteria for cities and provinces in terms of implementation of Directive No.20/2007/CT-TTg on salary payment via bank accounts in accordance with their development trends and practical conditions. As of end 2010, 53% out of the total number of the state budget beneficiaries conducted salary payment via bank accounts (against 41.5% by end 2009). The inter-bank electronic payment system has continued to expand and operate efficiently, thus contributing to enhancing the capacity of modern payment service supply,and meeting the payment demand of the economy.
Payment service providers have continued to apply numerous advanced technologies with bankcards becoming popular means of payment. As of end 2010, the number of cards issued nationwide is estimated to figure about 28.5 million , with the installment of more than 11,000 ATMs and nearly 50,000 POSs. Active efforts have been made to connect ATMs and POSs into a nationwide unified system, in which the Banknet - VNBC- Smartlink alliance has successfully connected the nationwide ATM system and coordinated with 15 banks to successfully connect the POS systems in Hanoi and Ho Chi Minh City with the participation of a large number of goods and service providers.
In 2010, the institutional system of monetary and banking operations has been improved further in line with international standards and practices and domestic conditions in order to enhance the effectiveness and efficiency of the SBV state management and facilitate safe and effective operations of credit institutions. The revised Laws on the SBV and Credit Institutions have been passed by the National Assembly to take effect on January 1, 2011.
In addition, such other key tasks have been actively implemented as renovating and improving the quality of statistics and forecasting, improving the institutional regulations on monetary and banking operations, and promoting external relations and international integration, administrative reform, communication and information so as to heighten the confidence of the public in the monetary and banking policies of the Government and the SBV.
4. Shortcomings and problems need to be surmounted
The money and foreign exchange markets and the balance of international payment have shown unfavorable developments at times with the imbalance between supply and demand of foreign currencies and the exchange rate difference between the formal and parallel markets. Gold price has fluctuated alongside with speculation and price manipulation in the domestic gold market. Operations of credit institutions have shown potential risks. Interest rate volatility in early December showed several credit institutions’ instable and inresposible operations to a certain extent. The liquidity management capacity of some commercial banks remained limited. Several commercial banks have not strictly complied with the instructions of the Government and the SBV and the committed consensus on interest rates among members of the Vietnam Banks Association. In spite of further development, non-cash payment in Vietnam has not matched with the available infrastructure, mainly due to the age-old habit of cash payments of residents....
II. Tasks of the banking sector in 2011
Based on the global and domestic economic outlook, the National Assembly and the Government have determined that in 2011, it is necessary to to closely combine the management of the fiscal and monetary policies in a proactive, prudent and flexible manner, thereby contributing to meeting the objectives of economic growth, inflation control and trade deficit restriction.
On the basis of credit and monetary indicators in 2010, and the objectives of economic growth and inflation rate in 2011 set by the Government, the SBV has defined the key objectives and tasks in 2011 as follows:
- To promptly formulate and issue the impelementing guidelines of the Laws on the SBV and Credit Institutions to create a solid legal framework for banking operations;
- To manage the monetary policy in a proactive, flexible and prudent manner in line with market principles in close combination with the fiscal policy and other macroeconomic policies with aim of controlling inflation, stabilizing macro economy, maintaining the total liquidity increase of 21 - 24% and credit growth rate of 23%, keeping the interest and exchange rates at a proper level in line with macroeconomic balances to ensure safe and sound operations of the banking sector, and promoting the efficiency and effectiveness of the SBV state management.
- To manage the exchange rate and foreign exchange by market forces in line with interest rate movement, harmonized balance of foreign exchange demand and supply, an increase of liquidity for the market, promotion of export and mitigation of trade deficit, and gradual decrease of dollarization in the economy. In addition, efforts will be made to work closely with the related ministries and agencies in strictly managing the gold and forex markets.
- To improve credit quality, and to evaluate the practical credit operations of credit institutions with proper measures in order to thoroughly manage the credit scope, quality and structure.
- To closely monitor and promptly forecast accurate domestic and international economic and monetary trends for the SBV guidance and management.
- To better the alerting and early warning capacity in terms of risks of banking operations; to make effective combination between the compliance supervision and the risk based supervision in regard to the supervised entities.
- To accelerate the strengthening and restructuring of credit institutions in accordance with international standards and practices together with the improvement of transparency of banking operations.
- To continue accelerating non - cash payment in Vietnam in the period of 2011-2015.
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