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A review of Vietnam’s 2011 monetary market
Despite achievements in curbing inflation and macro-economic stabilization, the Vietnamese monetary market last year still remained unstable.
On February 11, 2011, the State Bank of Vietnam increased the dollar exchange rate from VND18,923 a dollar to VND20,693 a dollar, meaning the dong was devalued by 9.3 percent against the greenback.
The unofficial market then experienced a strong fluctuation, with the forex rate soaring to VND22,000 a dollar at certain times.
However, the foreign exchange market then developed in a more stable way, without considerable volatility, thanks to the central bank’s tightened credit policies, plus the restriction put on those eligible to borrow foreign currencies, and the increase of the country’s foreign reserves.
By the end of last year, credit in foreign currencies enjoyed a growth of 19 percent, while the figure for deposits was 8 percent, proving that the public still preferred the US dollar over the dong, according to Dau Tu Chung Khoan newspaper.
Specifically, with the central bank keeping the forex rate stable for two months and then repeatedly hiking it during the first half of October, many economic experts said the foreign exchange rate will be under pressure this year.
The forex rate cannot remain at the current rate should inflation remain high, and public confidence in the dong has yet to be restored, they said.
Interest rates remained high
The central bank last year succeeded in restricting the total means of payment growth to around 10 percent, and credit growth to 12 percent.
Specifically, VND credit growth stood at 10.2 percent, and foreign currency at 18.7 percent. Meanwhile, credit for the production sector rose by 15.7 percent, while credit for the non-production sector, including securities, real estate, and personal consumption, dropped by 20 percent.
In the first eight months of last year, lending and deposit interest rates for VND constantly remained high, with many credit institutions even defying the central bank’s regulation setting the deposit interest rate cap at 14 percent a year to offer depositors higher rates. Accordingly, these banks charged borrowers with exorbitant lending rates of up to 28 percent a year, driving them to production suspension, and even bankruptcy.
Figures show that nearly 50,000 businesses had to declare bankrupt, shut down production, or merge with others in 2011.
The central bank then strengthened their crackdowns on violators of the interest rate cap, and implemented measures to ease the lending rate burden to assist businesses. Since this enforcement, most of the commercial banks now strictly follow regulations to offer the deposit rate at the ceiling of 14 percent a year.
However, in the last months of the year, with certain bank still charging high lending interest rates, local businesses still had to suffer rates of 20 to 22 percent a year.
Meanwhile, some banks again breached the interest deposit rate cap, leaving the public wondering how lending rates could be reduced this year.
Bank restructuring
In the last months of 2011, many small banks faced alarming liquidity shortages, leading to the necessity of a restructuring of the banking system.
In early December, the first merger in the system was implemented, with three banks, Ficombank, TinNghiaBank, and Saigon Commercial Bank merging with each other.
However, insiders expressed concern that merging banks is not a simple task given the Vietnamese banking system situation, while they also expect the restructuring to be more transparent.
It is difficult for three small, weak banks to become a strong one after merging, they said, adding that the central bank should stay cautious while processing the restructuring.
vietnamnet
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