2016: Central rate rises by 1%, interest rate not reduced as expected.

The supply of capital still depends mainly on banks. Picture: H.Dịu.

According to the report, total assets of the financial system in 2016 were estimated to rise by 13.5%; total owner’s equity increased by 6.8% compared to the end of 2015.

However, the scale of the Vietnam financial system remains smaller than other countries in the region. Total assets of the financial system are equivalent to 187.6% of GDP, lower than the average of 5 leading countries in ASEAN (318% of GDP).

Besides, the bad debt rate is less than 3%, more than 500 trillion vnd of bad debts have been handled since 2013, (in which 41.6% of debts have been sold to Vietnam Asset Management Company (VAMC), 58.4% of debts have been solved by credit institutions themselves).

However, according to the NFSC, handling bad debts of the system of credit institutions has been not drastic, mostly applied technical measures, bad debts was higher than the figures in the report. As the bad debts were sold to the VAMC, only 38 trillion vnd has been handled, equivalent to 15% (through sale of collateral assets and sale of debts: 14.5 trillion vnd, entrusted to credit institutions with debt recovery of 23.3 trillion vnd).

About the money market, as the report shows, liquidity of the banking system has been ensured, interbank interest rates have decreased, facilitating to complete early the plan on issuing government bonds.

Good liquidity thanks to better mobilization than last year, and increasing higher than credit. In 2016, mobilized growth was estimated to reach 19%, one point higher than credit growth; the money supply increased sharply, expected to rise over 3 points compared to last year, reach about 19-20%. In 2016, the State Bank supplied money through buying foreign currency and net withdrawal was only about 60% of total money supply through the open market.

However, despite the plentiful liquity on the interbank market (the market 2) and the fall in interest rate, the interest rate has not been as expectations. The average of deposit rate and lending rate over the year-end market has reduced compared to the previous months, but risen slightly compared to the beginning of 2015.

It is caused by surplus liquidity in the market in short-term, while the lending structure is mainly medium and long term; moreover, there is a divergence in the ability to raise capital in the market among credit institutions.

Pa-ticularly, a number of weak credit institutions are struggling due to lack of credibility and collateral assets for reciprocal borrowing. The proportion of interbank loans/total capital of credit institutions is very low (less than 3%). The re-discount loan rate (4.5%/year) or refinance rate (6.5%/year) is much higher than the interest rate in the interbank market. Thus, those banks must raise funds from individuals and enterprise, with higher interest rates from 1.5-2%/year compared to bigger banks, leading to increase of the average interest rate in the whole market.

In the foreign exchange market, the NFSC says the market has been quite stable throughout the year, only changed slightly at the end of the year due to the seasonal factors and the psychological impact of the appreciation of the US dollar in the global market after the US presidential election.

The central rate by the end of November rose by over 1% compared to the beginning of the year. Rates of commercial banks and non-official markets have also rebounded, commonly at 22,700 vnd/$US 1.00 by the end of November, rose about 0.22% compared to the beginning of the year.

However, foreign currency supply is quite plentiful due to the support from trade surplus, and an increase in FDI. The overall balance of payments is predicted to reverse positively compared to the end of 2015.