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Information on banking activities in first six months of 2011
In early 2011, although the global economy continued to grow, its recovery still faced many difficulties and challenges due to rising inflation pressure, especially in the developing and emerging countries, the risks of sovereign debt crises in certain developed countries, the political crisis in several countries of the Middle East and North Africa, and the earthquake and tsunami in Japan. The global trade increased partly due to rising commodity prices, and import turnover in some economies tended to be higher their export turnover. The US dollar tended to depreciate in the first four months, but in May it appreciated against most major currencies in the world. To cope with rising inflation, since late 2010, many central banks have step by step tightened their monetary policy, and raised the benchmark rates and reserve requirement ratios.
In Vietnam, the economy maintained a relatively high growth rate; the consumer price index slowed down in May and appeared to show gradual reduction. In the first five months of 2011, the YoY output of industrial production was up by 14.2%, the total retail sales of goods and services by 22.5%, export by 32.8% ( USD 34.7 billion), andd trade deficit of USD 6.6 billion (Equivalent to 19% of export turn-over). CPI in May rose to 12.07% as compared to end 2010. However, the economy continued to face difficulties and challenges, namely (i) high inflation and trade deficit; (ii) the decline of the stock market and complicated movements of the real estate market; (iii) reduction of foreign direct investment ; and (iv) high interest rates (Due high inflation) to cause negative effect on production and business.
I- Ket Tasks of SBV:
1. Strictly and prudentially managing the monetary policy to control inflation and stabilize the money market:
Right from the beginning of the year, to implement the 2011 banking sector plan in response to Resolution No.02/NQ-CP of the Government dated January 9, 2011 on major solutions of the Socio-economic Development Plan and the state budgeting of 2011, the SBV pursued a flexible monetary policy with the aim of proactively controlling inflation and stabilizing the money market. In particular:
- Increasing the refinancing and overnight rates in the inter-bank electronic payment and the rates of loans to finance short balances in clearing transactions and open market operations (OMOs) for 7 day term from 9% p.a to 11% p.a;
- Flexibly managing monetary policy instruments (OMOs, refinancing, and foreign exchange swaps) in order to support the liquidity for credit institutions, and meet the demand of cash during the Lunar New Year of the Cat;
- Depreciating VND in the inter-bank average exchange rate against USD by 9.3% from 18,932 to 20,693 applicable on February 11th and narrowing down the trading band of credit institutions against the inter-bank average exchange rate to ± 1% from ± 3%.;
- Directing the SBV municipal and provincial branches in coordination with the relevant authorities in monitoring and dealing with all the cases of speculation, hoarding and illegal trading of gold and foreign currencies.
SBV measures in response to Resolution 11 of the Government:
Following the issuance of Resolution 11/NQ-CP of the Government dated February 24, 2011 on key solutions to curb inflation, stabilize macro-economy and promote social protection, the SBV took synergetic and decisive measures to pursue a tight and prudent monetary policy in order to strictly control growth rate of total liquidity and credit outstanding, and credit restructure and the liquidity of the banking sector. In particular:
- To require credit institutions to develop and implement the 2011 operational plan in line with the targeted credit growth of below 20%; to prioritize credit extension for business and production, agricultural and rural development, exporters and supporting industries, and small and medium enterprises; to reduce the pace and amount of loans for the non-productive sector to account for 22% of the total loan outstanding by June 30 and 16% by December 31. The SBV will strictly deal with those credit institutions still adhering to the credit growth rate of over 20% in 2011.
- To gradually increase the prime interest rates, of which the refinancing and overnight rates rose to 14% p.a from 11% p.a each; the rediscount rate was up to 13% p.a from 7% p.a; and the open market operations (OMOs) interest rate increased to 15% p.a from 11% p.a. To gruadually increase the reserve requirement ratio of foreign exchange deposits of credit institutions (Up by 2 percentage points from May 1, and 1 percentage point from June 1).
- To regulate the money supply and OMOs in line with the demands of the money market.
- To issue or revise several mechanisms and policies in line with the target of stabilizing the money market and tightly and prudentially managing the monetary policy as follows: setting the maximum VND and foreign currency mobilizing interest rates of credit institutions; setting the demand deposit interest rate for withdrawal of institutions and individuals before the due date; regulating fees and charges in lending operations by credit institutions; narrowing the coverage of foreign currency borrowers of credit institutions...
2. Implementing synergetic measures on the foreign currency and gold management:
In response to the guidance of the Government, the Prime Minister, especially Resolution 11/NQ-CP and Notice No.84/TB-VPCP dated April 13, 2011 on the foreign currency and gold trading management, the following actions were undertaken :
- Coordinating with the relevant ministries and agencies in monitoring and strictly dealing with illegal foreign currency and gold trading. Submitting to the Prime Minister a revised Decree in place of Decree No.202/2004/ND-CP dated December 10, 2004 on administrative penalties in the monetary and banking sector with more severe sanctions against all violations in foreign exchange and gold management. Requiring SBV municipal and provincial branches to review, monitor and revoke registration certificates of those foreign currency exchange agents if they are found to have no foreign exchange counters or violate the foreign exchange rules.
- Issuing regulation on termination of mobilizing and lending gold by credit institutions. Promulgating regulations on foreign exchange trading by the state-owned economic groups and general corporations in the direction of the wider coverage of the implementers including the state-owned economic groups and general corporations and their subsidiaries.
- Instructing credit institutions to actively improve their internal procedures and apply necessary anti-risk measures in foreign exchange trading; continuing to take measures to control and limit foreign exchange loans and payment for importation of non-essential and discouraged goods; enhancing the issuance of international payment cards to meet the needs of overseas spending by travellers and selling foreign cash to meet the legitimate needs of people in accordance with law.
- Focusing on formulating and finalizing many related draft legal texts such as the draft Decree on gold trading management, the new Circular on the maximum amount of foreign cash allowed to be taken abroad by residents without custom declaration; the Circular on payment, quotation, advertisement in foreign currencies; the Circular on foreign cash trading with individuals by credit institutions; the Decree on management of non-government guaranteed foreign debts; regulating the foreign exchange position of the licensed credit institutions ...
3. Enhancing supervision of banking operations:
- To maintain a safe and sound banking sector, the SBV required credit institutions to provide loans and reschedule loan repayment, to make loan classification, provisioning and use of provisions against credit risks in compliance with law; not to conceal bad loans; to carry out internal audit and control, and evaluate the compliance of law and internal credit procedures in order to promptly tackle credit risks.
- To guide SBV municipal and provincial branches to strictly comply with the regulations on network expansion of credit institutions in 2011 in the direction of temporarily terminating the processing of the requests of opening transaction offices of credit institutions from February 25, 2011; and allowing commercial banks and branches of foreign banks to install ATMs in compliance with the applicable regulations.
- Focusing on monitoring the implementation of Resolution No.11/NQ-CP 01/CT-NHNN of the Government and Directive No.01/CT-NHNN. SBV had completed supervision of loan extension for the non-productive sector at 7 credit institutions and 170 branches of credit institutions nationwide, and monitored the implementation of Resolution No.11/NQ-CP and Directive No.01/CT-NHNN at over 20 joint-stock commercial banks.
4. Promoting non-cash payment and developing banking technology and services:
In order to futher promote non-cash payment, following the launching of the POS connection in Hanoi, Ho Chi Minh City and Da Nang, the SBV directed the SBV municipal and provincial branches to carry out the inter-network connection of card payment via POSs through card providers and develop POS card payment in their locations. The SBV also required the card issuers to proactively coordinate with public security agencies to take protective measures to ensure safe operation of ATMs; to improve warning information on the forms of ATM crimes for customers to heighten their vigilance and coordinate in crime prevention; to invest in installation of crime prevention devices and assign staffs on duty to closely monitor and promptly fund ATM systems, and tackle technical problems in a timely manner in order to improve the service quality.
5. International cooperation in the banking sector:
International cooperation of the banking sector in the first 6 months of 2011 continued to achieve positive results. The relationship with international financial institutions, and multilateral and bilateral banking institutions continued to expand with new steps forward. SBV continued to act well as the representative of the Government of Vietnam in the international financial institutions and take the lead in coordinating with other ministries and agencies to prepare, negotiate and sign program and project loan agreements with WB, ADB...
It is notable that Vietnam successfully hosted the 44th Annual Meeting of the Board of Governors of the Asian Development Bank (ADB) in Hanoi during May 3-6.. The Meeting attracted nearly 4,966 delegates, including a number of Prime Ministers and Deputy Prime Ministers, Ministers of Finance, Governors of central banks and senior leaders of international financial institutions…, 205 delegates from non-governmental organizations (NGOs) and 464 domestic and foreign media workers. The ADB President and various delegations highly appreciated the preparation and convention of the 44th ADB Annual Meeting in Vietnam. The successful convention of the 44th ADB Annual Meeting contributed to enhancing the prestige and position of Vietnam in the international arena and bringing about good impression of a dynamic, traditional, cultural and friendly Vietnam for international friends.
II- Credit and monetary performance in the first 6 months of 2011:
With synergetic monetary and banking measures in line with the targets of controlling inflation and stabilizing macro-economy, SBV gained some outstanding achievements as follows:
- Total liquidity: The total liquidity by June 10 increased by 2.33% as compared to end 2010.
- Fund mobilization: The total deposit outstanding by June 10 rose by 2.37%, of which the deposits in VND were up by 1.15% and foreign currencies by 8.89%.
- Credit outstanding: Credit to the economy by June 10 increased by 7.05%, of which credit amount in VND and foreign currencies were up by 2.72% and 22.21% respectively. Credit amount rose by 6.17% for short terms and 7.66% for medium and long terms.
Credit outstanding for the productive sector increased by 10.97%, accounting for 83% of the total loan outstanding, of which credit amount rose by 24.96% for agricultural and rural development and 25.77% for exporters. Credit outstanding for the non-productive sector decreased by 9.46%, accounting for 16.92% of the total loan outstanding.
- Interest rates: The actual average VND lending rate increased by 3.4 percentage points p.a as compared to end 2010, to 18.74% p.a, of which the lending rates for rural and agricultural production, and exporters were 17-19% p.a; and the rates for other business and production sectors were 19.2% p.a; and the rates for the non-productive sector were 22-25%p.a. The common USD interest rates were relatively stable. The USD mobilizing rate was close to the fixed ceiling rate. The average USD lending rate was 6.4% p.a, equivalent to that of end 2010.
The lending rates in the inter – bank market from mid May were on a downward trend, the current overnight lending rate was 13% p.a, the rates for 1 week , and 2 weeks - 1 month were 15% p.a and 18% p.a respectively.
- The foreign exchange market showed more positive signs. The foreign exchange positions of commercial banks were improved, the psychology of the market was stable, and the parallel forex market was strictly monitored. The amount of foreign currency purchase by commercial banks was much larger than their sale. Thereby, the average inter – bank VND / USD exchange rate was on a downward trend. At certain times, commercial banks quoted their exchange rates lower than the average inter-bank exchange rate.
The domestic gold market was tightly controlled. At certain times, the domestic gold price was lower than the world market price due to the decline of gold hoarding and low demand.
- The performance of credit institutions continued to be stable, the liquidity was ensured, and the VND liquidity was gradually improved. As of April 30, the equity of credit institutions increased by 13.34% as compared to end 2010.
- Non-cash payments continued to show numerous positive changes. Non-cash payments accounted for 86% and electronic payments accounted for over 74% of the total banking payment revenue. Bank cards continued to increase rapidly. Up to now, 34 million cards had been issued by 51 card issuers with more than 240 brand names; the whole system got nearly 12,000 ATMs and nearly 58,000 POSs.
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