The "two sides" of cash flow when flowing to risky areas

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Dr. Nguyen Duc Do, Deputy Director of the Institute of Economics and Finance (Academy of Finance)

This is the rule of the market, so it is not possible to intervene in an imposing way, but it needs reasonable and correct management.

What do you think about the evolution of bank interest rates?

The movement of interest rates from now to the end of the year depends on many factors, especially the context of economic recovery and inflation both in the country and around the world. Accordingly, with the domestic situation, although the economic recovery process is not strong, the general trend is recovering, even increasing compared to many other countries in the region. Inflation also tends to increase but not high, so interest rates are difficult to lower, but may increase slightly.

In addition, the interest rate situation depends on the operating policy of the State Bank of Vietnam (SBV). In the difficult economic situation, it is influenced by the Covid-19 pandemic, the SBV will not raise interest rates, but it will maintain the current interest rate policy until the end of the year. Moreover, credit growth since the beginning of the year has been quite high compared to the same period last year due to economic recovery, credit demand has increased again, so interest rates will have less chance to decrease.

The above analysis shows that the interest rate level in the market may go up. But how much depends on many factors.

How do you assess the impact of cash flows tending to flow to some risky areas such as securities, real estate, etc., even cryptocurrencies with the above interest rate movements?

In recent months, deposit interest rates have dropped to quite low levels. The reason is that due to the impact of the economic situation and the Covid-19 pandemic, interest rates must be lowered to support the economy. Therefore, in order to maintain macroeconomic stability, including inflation, the SBV cannot raise interest rates. The side effect of this situation is cash flow to some risky areas such as real estate, securities, etc. However, this is a "two-sided" problem, not only having a bad impact on the economy.

On the positive side, the cash flow into stocks means into both stocks and bonds.

This will help businesses raise capital from the stock market, thereby reducing the burden on banks in providing capital. Especially in the context of credit flow to businesses is quite difficult, because many businesses lack conditions to be granted credit.

Moreover, Vietnam's credit-to-GDP ratio is already high, making credit to manufacturing and export industries more limited. Therefore, the Government and management agencies also have a policy to promote enterprises to mobilize capital through securities channels, including stocks and bonds.

With the real estate sector, the supply is currently less than the demand, when the money flows into this field, it will help supply to grow. Thereby it creates a good effect spreading to businesses in related fields such as construction, production of building materials and services.

Therefore, it is incorrect to say that the cash flow into risky areas is bad, because the market always has two investment flows, both good and bad, we can hardly distinguish which is an investment or a speculation.

However, it is worth noting that there is also the phenomenon of money flowing into areas that have not been licensed by the State, such as digital currencies, foreign exchange (forex) exchanges, etc. These are illegal investment areas and potential risks, while the authorities do not have sanctions as well as sufficient information to manage and handle them.

How should the management agency solve the above problems?

Of course, being a "side effect" is inevitable, especially when the economy is operating according to market rules, people and businesses are entitled to invest and do business in areas where the law does not prohibit them. Therefore, the management and administration of state agencies must also be reasonable and correct.

Currently, the issue of cash flow into risky areas has also been paid great attention by the SBV, and the SBV has repeatedly warned credit institutions to control cash flow into risky areas, as well as giving many measures to control such as tightening credit, interest rates.

However, the State Bank can only control the credit flow, while the money of people and businesses cannot be limited or interfered with. As I said above, the cash flow to other areas for investment is not entirely bad, so the authorities should only issue warnings and strengthen supervision capacity to have solutions when needed.

Thank you Sir!