Banking sector: Timely and flexible

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The banking sector had a year with many achievements in management. Photo: Huu Linh.

Favourable policies

In 2016, the "breakthrough" of the banking sector was that the State Bank of Vietnam changed the calculation and exchange rate on the basis of the central rate. With this method, the exchange rate was adjusted every day in line with the global market through the "basket" of 5 major currencies, instead of a fixed exchange rate adjustment of 1-2% as years ago. With this flexible management, the exchange rate was relatively stable during 2016. At the end of 2016, the US dollar in Vietnam increased due to the impact of the political turmoil and an increase of interest rate of 0.75% announced by the U.S. FED. However, the State Bank of Vietnam confirmed that the supply and demand of foreign currencies in Vietnam did basically not have many changes with good liquidity, and the demand for foreign currencies was met promptly and fully.

The stable exchange rate not only ensured the target against dollarization, decreasing foreign currency speculators but it also helped the State Bank of Vietnam to reserve the largest amount of foreign currency with more than $US 40 billion, reducing borrowing costs in the international market.

In addition to the exchange rate, last year, the interest rate was quite stable and even decreased by 0.3-0.5%. This positive result derived from the fact that the State Bank of Vietnam encouraged commercial banks to implement measures to balance capital sources and the use of funds to maintain a stable interest rate, reduce operating costs and improve business efficiency to be able to reduce the lending rates, facilitating the business community. Currently, the lending rate is about 6-9% with enterprises enjoying priority with a good loan application. Thus, to the end of November 2016, credit increased by 14.57% compared to the end of 2015. In particular, VND credit increased by 15.81% and credit in foreign currencies increased by 3.49%.

Another notable point was that the State Bank of Vietnam has abolished a series of "licenses" and provisions which were not in line with the market. For example, Circular 06/2016/TT-NHNN amending some provisions of Circular 36/2014/TT-NHNN on the limit and safety in the operation of credit institutions has reduced the pressure of liquidity and gave a reasonable roadmap for commercial banks. And recently, the State Bank of Vietnam has "loosened" regulations on foreign currency lending for enterprises to the end of 2017 to support the business community in the difficult economy.

Much pressure

A banking expert said that, in 2016, the banking sector still had a lot of problems such as a slow process of bad debts, weak banks remaining unchanged; and ineffective collaboration between enterprises and banks.

"The impediment" of the banking sector for many years was how to reduce bad debts. According to the State Bank of Vietnam, the rate of bad debts was 2.58%, including off-balance sheet (OBS) and properties in Vietnam Asset Management Company (VAMC). This figure was lower than the level of 3% which the banking sector proposed, but many people concerned about the actual figure and were afraid that at some point, bad debts might "burst" if there was no way to solve this problem.

In this regard, Dr. Nguyen Tu Anh, Deputy Director of the Monetary Policy Department (under the State Bank of Vietnam) said, it was true that there was much pressure on bad debts and the banking sector still had to handle the problems related to bad debts with limited resources. However, bad debts were not only included in VAMC but 55.5% of bad debts were resolved with reserve funds, sales of assets and payment from customers.

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In 2017, despite the difficult economy with many negative factors affecting the banking system, the State Bank of Vietnam is committed to keeping the market stable and meeting the goals. In particular, for the restructuring of the banking system, many new measures have been proposed by the leaders of the State Bank of Vietnam and the Government, such as the search for additional resources or calling foreign investors to participate in the process of restructuring and resolving bad debts, or reselling some weak banks for foreign institutions. These methods are expected to create the breakthrough for the development of the banking sector next year, but careful calculation to match the economic situation in Vietnam is essential and is also the responsibility of the State management agencies.