Results of monetary policy management and banking performance after nine months of 2019

09:23-07/10/2019

On October 1, 2019, the State Bank of Vietnam (SBV) organized a press conference to disseminate information on the results of the monetary policy management and the banking operations after 9 months of 2019. Deputy Governor Dao Minh Tu chaired the conference.

 

SBV Deputy Governor Dao Minh Tu chairs the Press Conference

Also attending the meeting were representatives from the Banking Supervision Agency, the Payment Department, the Department of Credit for Economic Sectors, the Monetary Policy Department, the Communications Department, the SBV Office... as well as several commercial banks and media agencies.

Implementing Resolution No. 01/NQ-CP of the Government dated January 8th, 2019 and other resolutions of the Government’s regular meetings, the State Bank of Vietnam (SBV) has conducted consistent measures of monetary policy and ensured safe and effective banking operations. Accordingly, from the beginning of 2019, in order to achieve the macro-economic targets of the National Assembly and the Government to control inflation for the whole year below 4%, economic growth of about 6.8%, the SBV Governor issued Directive No. 01/CT-NHNN directing the implementation of the key tasks and solutions of the banking industry in 2019; setting the target of following closely the macroeconomic developments, the SBV has managed the monetary policy in a proactive, flexible, and prudent manner in coordination with the fiscal and macroeconomic policies, with a view to controlling the inflation in line with the set-out target, supporting the economic growth, stabilizing the money and forex markets.

 

Overview of the meeting

In addition, the SBV has also been regulating the interest rates in line with the macro developments and the money market, directing the credit institutions to proactively review and balance their financial positions to apply reasonable lending interest rates based on the mobilization interest rates and the risk levels of the loans, ensuring financial security. Based on the assessment of the macroeconomic developments and the domestic and international monetary markets, especially in the situation many central banks are continuously cutting interest rates, on September 16, 2019, the SBV adjusted the key management interest rates down by 0.25%/year in order to continue to facilitate the economy and the liquidity of the credit system. Basically, the interest rate levels remained stable.

In the foreign exchange market, the exchange rates are relatively stable, with flexible movements in accordance with the changes in the market conditions; the market liquidity is still guaranteed; the foreign currency transactions are going on smoothly, the legitimate demands for foreign currencies have been met fully and promptly. The SBV’s net purchases of foreign currencies have made constant supplies for the State foreign exchange reserves.

Based on the credit growth target of the whole year, the SBV has announced the credit growth target for each credit institution (CI); at the same time, the SBV has also directed the CIs to improve credit quality, focusing credit on production and business, and priority areas, creating favorable conditions in accessing credit capital. The SBV has issued Circular No. 42/2018/TT-NHNN dated December 28, 2018 amending and supplementing a number of articles of Circular No. 24/2015/TT-NHNN dated December 8, 2015 on lendings in foreign currencies by CIs to residents in Vietnam, which narrows some capital needs for foreign currencies. Mr. Pham Thanh Ha – Director General of the Monetary Policy Department – affirmed: “Credit for a number of sectors that are the driving forces of the economic growth, such as industry, construction, services and priority sectors has generally grown well; credit for potentially risky areas, credit for life’s demands has increased slowly as compared to the same period last year.”

Implementing the Prime Minister's instructions, with a view to limiting and repelling black credit as stipulated in the Government’s Directives from the beginning of the year, the SBV Governor has requested the CIs to step up the implementation of the solutions to remove difficulties and create favorable conditions for organizations and people to access capital; having appropriate credit solutions to meet the legitimate needs of the people, contributing to limiting black credit. At the same time, the SBV Governor has issued Decision No. 1178/QD-NHNN promulgating the Action Plan of the Banking sector to implement the Prime Minister's Directive 12/CT-TTg of April 25, 2019 on enhancing the prevention, fighting against criminals and law violations related to black credit activities.

In addition, the administrative procedure reform has received special attention from the SBV. According to the results of the 2018 Public Administration Reform Index (PAR index), the SBV achieved the highest score of 90.57/100 and continued to rank at No. 1 among the ministries and central government agencies. This is the 4th year in a row that the State Bank has ranked No.1 in PAR. According to Deputy Governor Dao Minh Tu, the SBV has set a consistent goal of strengthening PAR in the SBV system in association with renovating the services of the banking sector to focus on people and enterprises, creating a clear change in improving the business environment in the banking activities. All administrative procedure reforms are essentially solutions to increase access to credit, as well as banking and monetary services for the businesses and people throughout the process, symplifying conditions and procedures for borrowing money and providing banking and monetary services.

With the implementation of the above-mentioned drastic solutions, the banking sector has basically met the capital needs for production and business, the legitimate needs of the people. As of September 24, 2019, the credit balance to the economy increased by 8.64% compared to the end of 2018. Sharing at the Conference, Mr. Nguyen Quoc Hung – Director General of the Credit Department – said that credit for most priority sectors has increased positively, such as: Credit for high-tech enterprises increased by 22.04%; Credit for export increased by 13.2%; Credit for small and medium enterprises increased by 11.42%; Credit for agriculture and rural areas increased by 6%; Credit for support industries increased by 1.85%. The credit programs under the directions of the Government and the Prime Minister, such as lendings to reduce losses in agriculture, lendings to clean agriculture, high-tech agriculture, social housing,... continued to be strongly implemented by the CIs. Credit for risky areas has been strictly controlled in accordance with the orientations of the SBV.

The restructuring of the CIs also got further promoted. The results of the CI system restructuring have enhanced the system stability, the safety of the CI system has been ensured, which has been reflected in such aspects as: The financial capacity of the CIs has continued to be strengthened, the charter capital of the Cis has increased steadily over the years; the CI system scale has continued to grow; the CIs' capabilities in governance, inspection, internal audits and risk management have been constantly improved and got closer to the international practices; the transparency in the operations of the CI system has been enhanced ...

 According to Mr. Nguyen Trong Du, Deputy Chief Inspector of the Banking Supervision Agency, the implementation of Basel II Capital Standards continues to be focused to meet the international capital safety practices. Up to now, the SBV has approved for 11 commercial banks to implement Circular No. 41/2016/TT-NHNN before the deadline ((the timeline prescribed in this Circular is January 1, 2020).

The implementation of Resolution No. 42/2017/QH14 has achieved some positive results. The accumulated figures from August 15, 2017 to the end of June 2019 show that the whole CI system has handled VND 224.7 trillion of bad debts as determined by Resolution 42 (excluding the use of risk provisions). The ratio of bad debts in the balance sheet by the end of June 2019 was 1.9%. It can be said that the credit quality has been improved with measures to handle bad debts that have been implemented synchronously together with measures to control and prevent newly arising bad debts; improving credit quality and reducing the bad debt ratio of the CI system.

In the field of payment, in addition to improving the legal basis, the SBV has implemented synchronous solutions to promote non-cash payments. At the same time, the SBV has directed the credit institutions to further invest in and develop payment infrastructure, enhance security and confidentiality, ensure the legal rights of customers as well as apply the innovations of the IR 4.0 in providing payment services. As a result, non-cash payments have continued to make many positive changes. According to Mr. Nghiem Thanh Son, Deputy Director General of the SBV Payment Department, up to now, there have been 78 payment service providers providing Internet payment services and 45 mobile payment service providers. After 7 months of 2019, the number of financial transactions via the Internet reached more than 226 million, with the transaction value of about VND 10,900 trillion (increased by 51.8% in number of transactions and 18.3% in value over the same period of 2018); the number of financial transactions via mobile phones reached nearly 202 million, with the transaction value of over VND 2,090 trillion (increased by 104.9% in number of transactions and 155.3% in value over the same period of 2018). The number and value of domestic payment transactions by bankcards continued to increase; many features and utilities have been integrated into bankcards for payments for goods and services; at the same time, the banks have also constantly improved the quality of their services, the safety and security in card payments. Payments of public services via banks have made many positive changes.

In particular, the information, communication and education (IEC) on non-cash payments has received high attention and been promoted effectively. According to Mrs. Le Thi Thuy Sen, Director General of the Communications Department, over the past time, the SBV has been actively developed the content and coordinated with the media to conduct the financial education programs, which have received high evaluation from the public, such as "Smart money", "Smart-kids", the contest "Correct understanding about money" , "Wise money",... in order to raise the public awareness and knowledge, thereby improving the accessibility to banking products for the people, encouraging the use of non-cash payment methods.

Orientations of monetary policy management and banking operations in the coming time

Responding to the reporters' questions related to the new points in the monetary policy management during the emaining months of 2019, Deputy Governor Dao Minh Tu said that on the basis of the targets set by the National Assembly and the Government, as well as the assessments on the macroeconomic and monetary developments, for the remaining months of 2019, the SBV will continue to operate the monetary policy in a proactive, flexible, prudent manner, in close coordination with the fiscal and other macroeconomic policies to control average inflation under the 4% target; keeping abreast of the macroeconomic developments, the domestic and international financial and monetary market situations, stabilizing the monetary and foreign exchange markets, controlling the growth of total payment and credit facilities in line with the set orientations.

Regarding the credit provision for BOT and BT projects, Deputy Governor Dao Minh Tu affirmed that: Complying closely with the guidelines and policies of the Party, the State and the directions of the Prime Minister, the banking sector is always prepared to provide lendings to the infrastructure investment projects to serve the country's socio-economic development, including BOT projects; however, it is required to conduct solutions to ensure safety in the banking operations, such as the safety indicators, capital adequacy ratio (CAR),... of the commercial banks.

Recently, the mobilization of credit from domestic investors has mainly relied on domestic CIs, while outstanding loans of long-term credit loans of domestic banks remain high. According to the SBV, BOT and BT projects normally require large total investment, with long payback periods, and large demands for loans; lending to BOT and BT projects puts great pressure on banks in balancing their capital sources, since the banks' capital is mainly short-term.

“Currently, total outstanding loans and credit commitments for BOT and BT projects have reached the credit limit for the banking sector. If banks cannot raise their charter capital, it will be difficult to raise capital for the North-South Expressway PPP projects”, said Deputy Governor Dao Minh Tu. Credit supplies are more difficult when under the SBV’s regulation requiring the maximum rate of using short-term capital for medium and long-term loans being reduced to 40% since January 1, 2018. Deputy Governor Dao Minh Tu also emphasized the urgency of clarifying the regulations and policies related to BOT and BT projects to minimize risks.

In the last months of 2019, the SBV will operate the open market operations, regulating the liquidity of the credit institutions at a reasonable level to stabilize the monetary market, contributing to the implementation of the monetary policy targets; administer the compulsory reserves in synchrony with other monetary policy instruments, in accordance with the market developments and the monetary policy targets; manage the interest rates and the exchange rates in line with the macro balance, the market developments and the monetary policy targets; synchronously combine the monetary policy instruments with flexible market interventions to stabilize the foreign currency market, contributing to the macroeconomic stability, supporting a reasonable economic growth and consolidating the State foreign exchange reserves in time of favorable conditions.

The SBV will also manage credit in line with the orientations and criteria, in synchrony with improving credit quality; focus on allocating capital resources into production and business sectors, especially priority areas according to the Government's policy; continue to create favorable conditions for businesses and people to access credit; strictly control credit for risky areas.

The SBV will further promote the implementation of the restructuring scheme of CIs system in association with handling with bad debts by 2020; implement drastically and effectively Resolution No. 42/2017/QH14 of the National Assembly on pilot handling of bad debts in the CIs; accelerate the handling of bad debts in line with the market mechanisms; control newly arising bad debts and preventing potential bad debts from turning into bad debts; strive to bring the non-performing loans ratio to below 2%;

Continuing to improve the legal framework, develop mechanisms and policies to promote non-cash payments; continue to effectively implement the Scheme on development of non-cash payments in Vietnam during the 2016-2020 period, and the Scheme on promoting payments via banks for public services, such as taxes, electricity, water use, education fees, healthcare and payments for the social security programs; promoting non-cash payments but focus on mobile payments and new and modern payment methods; deploying new payment models in the rural, isolated and remote areas in association with developing and implementing the National Financial Inclusion Strategy in Vietnam; promoting e-payments in the Government sector; continuing to direct organizations to actively provide non-cash payment services in the field of public services; strengthening the assurance of security and safety in electronic payments; supervising the activities of intermediary payment service providers to ensure proper operations in line with the regulations.

At the same time, promoting information and communication on non-cash payments, as well as financial education; improving access to financial and banking products and services for the people and businesses; strengthening measures to protect the consumers' interests, at the same time improve the quality and efficiency of the payment services; accelerating the reform of public administrative procedures in the banking operations, facilitating organizations and individuals in administrative transactions with the SBV and transactions with the CIs; contributing to improving the business environment in the monetray and banking areas; improving the national competitiveness; promoting businesses in general and credit institutions in particular to develop sustainably.

Theo: "SBV"