Press Release on
Performance of banking sector in 2012 and tasks for 2013
I. Results in implementing key tasks in 2012
In 2012, the banking sector faced many difficulties and challenges due to the negative impact of international and domestic macro-economies. The system of credit institutions entered into 2012 with liquidity stress, highly potential risks, risk of insolvency, high interest rates, tough competition in capital mobilization due to the considerable demand for liquidity which led to violations of the ceiling interest rate and increased bad debts. In this context, based on Resolution No.01/NQ-CP of the Government dated January 3, 2012, Resolution No. 13/NQ-CP of the Government dated May 10, 2012 and the guidance of the Prime Minister, the State Bank of Vietnam (SBV) took decisive and consistent management measures to ensure liquidity, the stability of the money, forex and gold markets, to fast reduce lending rates, and to restructure the banking sector. Following are the specific results:
1. Monetary policy, credit and exchange rate management:
- To manage the money supply in an active and flexible manner, thereby contributing to largely increasing the international reserves, while curbing inflation at the targeted rate and maintaining the prudent banking sector. By the end of 2012, the total liquidity increased by 22.4% as compared with end 2011 in line with macro-economic and money market developments.
- To manage the interest rates in order to direct and guide the market, and flexibly adjust the interest rates in accordance with macro-economic and monetary developments; and the mobilizing and lending rates decreased sharply in comparison with end 2011. By end 2012, the VND mobilizing interest rates reduced by 3-6% p.a, lending interest rates were down by 5-9% p.a as compared to end 2011 and were equivalent to the rates of end 2007.
- To flexibly manage credit operations towards credit extension in parallel with safe and sound banking operations; the credit structure changed positively in line with the directives of combating dollarization and focusing on capital provision to production and business, especially the prioritized areas set by the Government. By end 2012, credit growth reached the rate of 8.91%. In particular, credit in VND increased by 11.51% and foreign currency credit decreased by 1.56% as compared to end 2011, in line with the Government’s directives. Credit for agricultural and rural development, exports and small and medium enterprises increased by about 8%, 14% and 6.15% respectively. Loan outstanding for the discouraged fields decreased and accounted for only about 4.4% of the total loan outstanding to the economy.
- The banking sector took decisive measures in accordance with the Government’s directions in order to ease difficulties for production and business (in regard to borrowing costs and access to bank loans). Although credit growth was low, it gradually increased again over time; the proportion of loans with interest rates of over 15% p.a significantly reduced from 65.8% prior to July 15, 2012 to 19.2% by end 2012. Credit institutions actively coordinated with their borrowers to assess the repayment capacity of their customers to cope with difficulties in their loan repayment in line with the production - business cycle, capital recovery period of the projects, the borrowing plans, and the repayment capacity of customers.
- The active management of the exchange rate and foreign exchange policy and the guidance of the market in combination with the reasonable monetary policy management met the objective of stabilizing the exchange rate, increasing the international reserves, and reducing dollarization in the economy. The average buying exchange rate of commercial banks decreased by 1% as compared to end 2011, the exchange rate gap between the official and the parallel markets narrowed. The proportion of dollarization (foreign exchange deposits over the total liquidity) fell to 12.3% from 15.8% late 2011. The SBV bought large amounts of foreign currency to increase the international reserves .
- VND liquidity of the system of credit institution was improved, the risk of systemic failure was pushed back, credit institutions paid more attention to risk management and prudent operations. In particular: (i) deposit outstanding of credit institutions at the SBV was higher than the compulsory reserve requirements; (ii) the interest rate in the inter-bank market decreased by 10-11 percentage points p.a as compared to early 2012 and stabilized at a low level, there was no stress on liquidity, pushing up interest rates as high as in 2011; (iii) credit institutions bought large amounts of government bonds to restructure the portfolio and liquidity buffer; and (iv) the performance of credit institutions was basically safe and healthy, market discipline and order were restored and continued to remain stable.
- The SBV worked closely with ministries and agencies to enhance effective combination between the monetary policy and other macro-economic policies: (i) The issuance of SBV bills was performed with proper volume, maturity and interest rates to facilitate the Ministry of Finance to issue a large amount of treasury bills, government bonds, government-guaranteed bonds, thereby increasing liquidity to the economy. (ii) To actively coordinate and work directly with the Ministry of Industry and Trade and the Ministry of Construction to evaluate and take measures to deal with the inventory goods of enterprises and ease difficulties for the real estate market; (iii) To coordinate with the Ministry of Agriculture and Rural Development to support aquaculture and catfish rearing in the Mekong Delta provinces, and provide loans for purchasing and exporting rice, livestock, pork, poultry and fish, new rural construction ...
2. Gold market management
In response to the Government’s directive, the SBV set out a roadmap for managing the gold market. The roadmap consists of three phases as follows : Phase 1, Formulating a strict legal framework to manage the gold market; Phase 2, Termination of mobilization and lending in gold by credit institutions, and Phase 3, To fully turn the gold bar mobilizing and lending relations into a trading one; the State was to be responsible for gold mobilisation by buying gold to increase the official reserves and capital supply to the economy. Following are the obtained results in 2012 :
SBV drafted and submited Decree No. 24/2012/ND-CP to the Government for issuance on April 3, 2012 (Decree No. 24) to replace Decree No. 174 on gold market management. Decree No. 24 definces a legal framework to organize and rearrange the gold market. After the issurance of Decree No. 24, SBV promptly issued the implementing guidelines, namely Circular No.16/2012/TT-NHNN on May 25, 2012 and Decision No. 1623/QD-NHNN on implementing and managing gold bar production. SBV also issued Circular No. 38/2012/TT-NHNN on the gold position of the credit institutions, Circular No. 11/2011/TT-NHNN to request credit institutions to stop mobilizing and lending in gold. SBV issued Circular No. 12/2012/TT-NHNN dated April 27, 2012 to revise Circular No. 11/2011/TT-NHNN on allowing credit institutions to issue short-term gold-denominated certificates to make gold payment to the customers at their request in case where the amount of gold debt collection and cash in vault was not sufficient for repayment; and extended the deadline for the termination of the issuance of short- term gold-denominated certificates by credit institutions until 25 November 2012.
It can be said that the year 2012 marked the initial success in the gold market management of SBV in accordance with the guidance and directive of the Government. SBV made great efforts to advise the Government in completing the legal framework, to implement the roadmap for the termination of mobilization and lending in gold by credit institutions, and taking uniform measures to manage the gold market. As a result, the domestic gold market, especially the gold bar market, witnessed many significant changes in 2012 as compared to the past. Although the global and domestic gold prices fluctuated, the large gap between the global and domestic gold prices did not creat “a gold shock” locally. Righ in early 2012, SBV neither allowed the importation of raw gold for the making of gold bars nor tried to stabilize gold price, but the gold market did not suffer fom any across- border gold smuggling. Consequently, the exchange rate and foreign exchange market were stable without suffering from the adverse impact of the volatility of the gold price.
3. Restructuring of credit institutions
Upon the approval by the Prime Minister of the Scheme of restructuring the system of credit institutions in the 2011 – 2015 period, the SBV Governor issued an action plan of the banking sector for the Scheme implementation. Right at the beginning of 2012, SBV took drastic measures and solutions for restructuring the banking sector in line with the Scheme and achieved certain important results as follows:
- Identifying 9 commercial banks which need to be restructured without delay; setting up the Steering Committees composed of SBV representatives as the heads and members from the Ministry of Public Security, the Ministry of Information and Communications , and the municipal and provincial People's Committees in the locations to house the headoffices of the weak banks, and setting up oversight teams at these weak banks for close monitoring. These week banks had to be audited by international audit companies in parallel with comprehensive supervision by the SBV. At the same time. Based on the results of the supervision and auditing, SBV required these weak banks to formulate plans of restructuring in line with law and the Scheme of restructuringthe system of credit institutions in the 2011 – 2015 period in order to surmount difficulties and shortcomings of each bank. As a matter of fact, SBV submitted the restructuring plans of 8 out of 9 weak commercial banks to the Prime Minister for approval. Based on the approved plans, 3 commercial banks were mergered into one bank, 1 bank was acquired by an other bank, 3 banks have been undertaking self- restructuring, and 1 bank is to be merged with an other bank. In implementing the approved restructuring plans, the banks should carry out the comprehensive solutions in terms of finance, operations, governance and correction of errors.
The process of restructuring weak banks has been closely monitored by SBV by professional measures to ensure their full payment for their depositors without letting deposit run happen, and maintain political security and social order and safety. SBV has closely monitored weak banks. As a result, systemic risks and the danger of banking sector failure has been gradually pushed back, and the liquidity of banking sector, including weak commercial banks, has been clearly improved.
- Actively guiding the credit institutions to take measures to restrict an increase of bad debts , to recover the due loans, and proactively handle bad debts in accordance with law. Therefore, the growth rate of non-performing loans has remarkably slowed down; the unused risk provisioning as of the end of November, 2012 reached VND 78.6 trillion (equivalent to 58.31% of the total of non-performing loans), an increase of 33% as compared to end 2011; non-performing loans solved by credit institutions are estimated to value VND 45 trillion; loans restucturing measures have helped to curb a fast increase of bad debts and assisted customers to get access to bank loans. Many credit institutions have lowered their profit, and reduced operational costs (including a reduction of salaries and bonuses of employees) to focus on risk provisioning for solving non-performing loans.
To basically deal with bad debts, SBV has submitted to the Government a scheme for NPL resolution and a scheme for establising an asset management company. These two schemes will soon be reported to the Political Bureau of the Central Comittee of the Communist Party of Vietnam for approval prior to the signing by the Prime Minister for issuance.
- Te credit institutions have paid more attention on (i) renovation and improvement of governance, and internal conntrol and audit; (ii) strengthening the organisational structure and rearranging the branches and positions of key managers; (iii) enhancing the application of information technology and modernising banking technology. The restructuring of the business and asset portfolio has been made with inicial success, and business strategy has been worked out step by step with healthy competition.
Basically, the implementation of restructuring of credit institutions in 2012 has met the goal and the roadmap set in the restructuring scheme, ensuring the solvency of the banking sector and dealing with weak banks, especially a reduction of 3 weak banks by M&A.
4. Banking management and supervision
- SBV’s supervision was renovated in 2012 in terms of organizational method and implementing guidance, hence bringing about clear improvement of quality and efficiency to contribute to improving the effect of the state management and gradually restoring discipline in the monetary and banking field, and actively supporting the process of restructuring credit institutions. By comprehensive supervision, the financial and operational status, weaknesses as well as shortcomings of credit institutions have been clarified. The findings and recommendations of the Financial Supervision Agency played an important role in the improvement of the regulations and management policies for the banking sector.
- SBV actively implemented comprehensive revision and improvement of the legal documents on banking supervision to strengthen the state management, and directly supported the process of restructuring the system of credit institution in an effective manner to ensure that this system, following its restructuring, will operate safely, healthily and sustainably. SBV formulated and submitted the draft Law on Anti-Money Laundering to the National Assembly for passage on June 18, 2012.
- SBV strengthened the management of granting licenses to credit institutions and foreign bank branches, expanded the supervisory network to strictly control the scale of operations, limited risks of credit institutions, actively supported the process of restructuring the system of credit institutions. In 2012, SBV did not license any new commercial banks, finance companies, leasing companies, and foreign bank branches. The opening of new bank branches was mainly for the agricultural and rural development and nattional security and defense.
II- Key tasks for 2013
Based on the accomplishment of the tasks in 2012 and the set targets of the 2013 socio-economic development passed by the National Assembly, SBV has identified key tasks and solutions in 2013 as follows:
1. Flexibly and synchronously managing the monetary policy tools, ensuring the control of the money supply in line with the orientation of the total liquidity and credit management in order to meet the monetary policy objectives. In particular:
- Managing the SBV interest rates in line with macroeconomic and monetary developments, especially inflation. Continuing to apply the VND ceiling deposit interest rate to stabilize interest rates in the market, considering the removal of ceiling mobilizing interest rates when the money market is stable and the liquidity of the system of credit institutions is improved steadily. In case when 2013 inflation is kept at a lower rate than 2012, SBV will continue to manage the monetary policy in the direction of lowering interest rates in line with the inflation movement.
- Flexibly managing open market operations (OMOs).
- Providing refinancing loans with proper amount, interest rates and maturity for the purposes of supporting the liquidity and economic development in accordance with the prioritized areas of the Government, providing loans to social policy housing borrowers, supporting the process of resolution of bad debts and restructuring the system of credit institution.
2. Solutions of credit management:
- Keeping the 2013 credit growth rate of around 12% with flexible adjustment in accordance with practical movements and condition. The proportion of loans for the discouraged fields will not be controlled; continuing to allow credit institutions to extend short-term loans in foreign currencies for overseas payment for petroleum imports of enterprises without foreign currency income and domestic loans for production and trading of exported goods for enterprises with foreign currency revenues until the end of 2013.
- Coordinating with the Ministry of Construction in issuing and implementing the Regulations on providing loans for the social housing policy borrowers in line with the direction of the Government.
- Continuing to coordinate with ministries and agencies in taking measures to remove difficulties for production and business and support the market; changing the credit structure towards prioritizing capital supply to production of exported goods, agriculture, supporting industries, small and medium enterprises, high-tech enterprises.
- Implementing the credit programs and policies under the direction of the Government and the Prime Minister; coordinating with the Ministry of Agriculture and Rural Development and other relevant ministries and agencies in assessing the achieved results, difficulties and obstacles in the implementation of Decree No.41/2010/ND-CP of the Government in order to advise the Government on revision in line with the reality; and deal with the difficulties and problems of credit extension for the economic sectors.
- Revising and improving the legal documents on credit extension in accordance with the Law on Credit Institutions and the practical conditions with the aim of strictly controlling and ensuring safe credit operations by credit institutions, and limiting arising risks.
3. Flexibly managing the exchange rates and foreign exchange market by market forces, in consistence with the foreign currency supply and demand in the market, macroeconomic balances, and movements of the international balance of payment. Coordinating with ministries and agencies in taking measures to increase the international reserves; strengthening the management and supervision of the foreign currency and gold market, and strictly handling violations, taking measures to reduce dollarization and “goldization” in the economy.
Continuing to strictly organize the gold market, fully convert the relationship of gold mobilization and lending into the trading one. When the gold bar market is relatively stable, SBV will play as the producer and the last-resort trader in the gold bar market, to ensure the smooth operation of the market and increase the gold-denominated international reserves.
4. Improving the quality of statistics and forecasts for planning and managing the monetary policy.
5. Focusing on decisively and synchronously implementing solutions to restructure the system of credit institutions in accordance with the Scheme already approved by the Prime Minister with the following key tasks :
- Implementing the Scheme of NPL Resolution approved by the Government; establishing the Asset Management Company; formulating the Decree on organization and operation of the Asset Management Company.
- Continuing to fully and synchronously assess the actual financial position and credit quality, and identify weaknesses and shortcomings of each credit institution according to the 2013 supervisory plan.
- Synchronously carrying out the regulations related to the safe operations of credit institutions, asset classification, risk provisioning and utilization of risk provisioning; and the rules related to the handling of weak credit institutions to serve as the foundations for more accurate assessment of risks in banking operations and formation of safer standards to prevent risks, especially the risks arising from the group benefit relationship and cross-ownership, and creating the legal framework for dealing with those weak banks which are unable to restructure themselves and those senior managers who have committed serious mistakes in the management and administration of credit institutions.
- Based the results of the 2012 supervision, the assessment of the actual financial condition and performance of credit institutions as well as the new regulations on prudent banking operations to be issued in Quarter I of 2013, SBV will guide the formulation and implementation of the specific restructuring plan for each credit institution in order to do away with weaknesses, shortcomings and violations.
- Continuing to closely monitor the implementation of the bank restructuring plan already approved in 2012 to ensure the implementation of the roadmap as set in the plan.
6. Effectively implementing the 2013 supervision plan approved by the Governor. Inspecting the legal entity of credit institutions, especially the those institutions which are weak in terms of safety and law violations, and those institutions which have not been under supervision for three consecutive years.
7. Strengthening information and communication, and providing full and timely information on the monetary policy management and banking operations.
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