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The most outstanding events in banking sector in 2010
The sky high bank interest rates and dollar prices have been highlighted as the most noteworthy event in 2010.
Interest rates low in first months, high up in last months of the year
Since June 2010, the government has continuously urged commercial banks to slash Vietnam dong interest rates. However, the ”interest rate war” still erupted in the last months of the year. With commercial banks trying to push the interest rates up to scramble for depositors, the deposit interest rate once climbed to 17 percent per annum.
In an effort to curb the interest rate to make loans accessible for businesses, the Vietnam Banking Association, called banks many times to slash interest rates. After sitting together banks many times agreed to keep interest rates at reasonable levels. However, they then broke their promises and raised interest rates to attract more capital. The interest rate war has only been eased since mid December 2010.
Dollar price escalated
The dong/dollar exchange rate and the foreign currency market were stable in the first seven months of the year. However, the dollar price has been increasing since August. Especially, the market became scorching hot in mid October and in November when the dollar price hit a record high of 20,000 dong per dollar. The gap between the official exchange rate and the rate at which dollars were traded on the black market also reached the record high of 2000 dong per dollar, or 10 percent.
Foreign currency credit boomed
In 2010, the credit growth rate of the whole banking system was $29.81 percent, while outstanding loans in Vietnam dong grew by 25.3 percent, and foreign currency credit by 49.3 percent. If not counting the exchange rate fluctuations and gold price increases, the total outstanding loans growth rate would be 27.6 percent, of which Vietnam dong credit growth rate is 25.3 percent and credit in foreign currencies 37.7 percent.
The lower required compulsory reserves, the expansion of the subjects to foreign currency loans and especially, the big gap between the Vietnam dong and foreign currency interest rates were all factors that prompted businesses to rush to borrow in foreign currencies.
Circular 13 had big impacts
On May 20, 2010, the State Bank of Vietnam released Circular 13 stipulating the capital adequacy ratio. This was one of the most important legal documents released by the central bank which is believed to have big impacts on the operation of banks.
In general, the new legal document sets stricter requirements to ensure safe operations of banks.
Two new laws declared
The National Assembly has ratified two important laws, the amended Law on the State Bank of Vietnam and the amended Law on Credit Institutions.
The two laws took effect on January 1, 2011.
Gold trading tightened
The year 2010 witnessed strong intervention of management agencies in gold trading activities. The State Bank of Vietnam instructed to shut down gold trading floors.
Banks have also seen their gold trading activities downscaled under a new legal document released on October 29. The gold deposit interest rates dropped dramatically as the result of the new regulation.
State Bank extends deadline for capital increase.
State Bank of Vietnam instructed commercial banks to raise chartered capital to at least 3 trillion dong at least by the end of 2010. However, as many banks could not fulfill their plan to increase capital as required, the State Bank has decided to extend the deadline until December 2011.
Analysts believe that this is an appropriate decision, because if banks had tried to issue shares to increase capital at any cost, this would have bad impacts on the stock market. It was estimated that banks would need to arrange 30 trillion dong to increase capital to the required level.
Vinashin’s debts raised worries
Vinashin, the giant shipbuilding group, and its debt of 86 trillion dong, has raised worries about the increases of the bad debt ratios of commercial banks.
In an explanation before the National Assembly, Governor of the State Bank Nguyen Van Giau said the total outstanding loans of the Vietnamese banking system in Vinashin’s case is about 26 trillion dong, while 16 trillion dong is being restructured.
Lower credit ratings given
Big credit rating firms, including Fitch, Moody’s and Standard $ Poor’s all lowered credit ratings given to the national debts, government’s bonds and big commercial banks.
The firms showed Vietnam’s problems with economic certainties, payment balance situation, inflation and local currency stabilization.
Banks growing considerably
Despite the big difficulties, Vietnam’s banking system still has been growing. The total assets of the whole system increased by 28 percent.
vietnamnet, vneconomy
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