Stable macroeconomic environment facilitates banking activities

15:05-15/02/2019

The Governor of the State Bank of Vietnam (SBV) Le Minh Hung emphasized that in his opening remarks at the Conference  on dissemination of the banking sector’s tasks in 2019 on January 9 in Hanoi.

The Conference was attended by Mr. Nguyen Xuan Phuc, Prime Minister; Mr. To Lam, Minister of the Ministry of Public Security; Mr. Tran Hong Ha, Minister of the Ministry of Natural Resources and Environment; Mr. Le Thanh Long, Minister of  the Justice Ministry; Mr. Vo Van Dung, Permanent Deputy Head of the Central Internal Affairs Commission. Besides, the Conference also welcomed the presence of Mr. Sonexay Sitphaxay, Governor of the State Bank of People’s Democratic Republic of Laos; representatives of leaders of the Government, the National Assembly, ministries and sectors.

In his opening remarks, SBV Governor Le Minh Hung said that in 2018, following the resolutions of the National Assembly, the Government, the SBV promulgated the Order 04/CT-NHNN dated 10/01/2018 and the Order 04/CT-NHNN dated 02/8/2018 on implementation of key tasks, solutions in 2018, ensuring the safety and effectiveness of banking activities. On that basis, the SBV manage monetary policy and banking activities synchronously, achieving the target set at the beginning of the year, making significant contribution to control inflation, maintaining macroeconomic stability, supporting economic growth and ensuring the safe activities of credit institutions.

On behalf of the SBV’s Board of Management, the Governor stressed that the banking system made significant contribution to the economy and at the same time, the Government’s execution of economic policy helped keep the macroeconomic environment stable, facilitating the operation of the banking sector.

“Our business environment is good since the Government consistently pursued the policy of maintaining macroeconomic stability. Without the well controlled macroeconomic environment and inflation, the banking sector would not have fulfilled its objectives” said the Governor.

As stated in the report at this Conference, in 2018, the conduct of monetary policy and banking activities achieved positive results, as follows:

Firstly, the SBV utilized monetary policy instruments simultaneously, flexibly to keep the monetary, foreign exchange markets stable, contributing to curbing inflation at 3.54% (for the fifth year in a row, inflation controlled at below 4%) and supporting the economy to grow by 7.08%, the highest level for the last 11 years. By the end of 2018, the total money supply M2 rose by around 12.5% year on year.

Secondly, the level of interest rates was kept stable in the context of increasing interest rates in the foreign markets. Accordingly, the SBV managed interest rates in line with the macroeconomic and monetary developments; focused on regulating and timely meeting the liquidity demand of credit institutions, maintained the interbank offered rates at reasonable levels; adjusted OMO bid rates from 5%/year down to 4.75%/year to contribute to reducing capital costs of credit institutions; ordered credit institutions to continue reviewing and balancing the financial capacity to apply reasonable lending rates to share difficulties with clients and ensure financial prudence. The level of interest rates of credit institutions in 2018 was basically stable; the average lending rates were 6-9%/year for short-term and mid-term periods, and 9-11%/ year for mid-term and long-term periods.

Thirdly, credit growth was regulated in alignment with the macro balances to meet the capital demand of the economy, together with improving credit quality, focusing on production for credit provision, strictly controlling credit provision for risky areas, ensuring operational safety. Thanks to combination of various measures, credit rose right from the beginning of the year and evenly through 12 months, credit by the end of 2018 increased by about 14% against the end of 2017. Credit structure continued to be well adjusted, in which loans were mainly given to production and priority areas while loans to risky areas were reasonably controlled.

Fourthly, foreign exchange rates and foreign currency market were stable and transparent; the SBV continued to increase the state foreign reserves through buying foreign currencies. In 2018, the SBV actively and flexibly regulated the foreign exchange market, carrying out a flexible center rate policy, combined monetary policy instruments, regulated liquidity, Vietnamese dong-denominated interest rates reasonably to keep the market stable, supplement the foreign reserves, and contribute to controlling inflation. Therefore, foreign exchange rates, the foreign currency market and liquidity were ensured, foreign currency transactions were transparent, demand for legitimate foreign currency transactions of the economy was met fully and timely. The local gold market continued to be stable and fluctuate in a narrow ban amid the complicated developments of foreign gold prices.

Fifthly, although the process of restructuring the system of credit institutions together with dealing with non-performing loans was not long, the Resolution 42/2017/QH14 on piloting the settlement of bad debts of credit institutions and the Decision 1058/QD-Tag on approving the Scheme on restructuring the system of credit institutions together with dealing with non-performing loans in the period of 2016-2020 (the Decision 1058) came into effect, bringing in a lot of positive changes. The Resolution 42 and Decision 1058 showed consensus in viewpoints and concern of the Party, the National Assembly, the Government and the SBV about removing difficulties of restructuring the system of credit institutions and resolving non-performing loans, keeping the system sound, contributing to speeding up economic growth.

Sixthly, in term of payment, the banking sector was one of the leading sectors in applying achievements of technology revolution (Technology Revolution 4.0), contributing to improving the service quality, increasing utilities for customers, reinforcing non-cash payment.

Seventhly, the SBV paid special attention to the quality, safety, effectiveness of transactions through ATMs and the payment system and demand for money at the end of the year. Besides, the SBV regularly monitored, supervised commercial banks to provide them with timely guidance on the service quality, security, safety in the payment, operation of ATM system.

Recommendations at this Conference would help the SBV to carry out the monetary policy actively, flexibly, cautiously, in close coordination with the fiscal policy and other macroeconomic policies so as to control inflation at below 4%, keep the macro economy stable, support the economic growth at a reasonable level and maintain the stability of the monetary and foreign exchange markets.