Results of monetary policy management and banking operations
in the first five months of 2017
Following the instructions of the Government in the Resolution No.01/NQ-CP dated January 1, 2017 on key measures in execution of the socio-economic development plan and state budgeting in 2017, Governor of the State Bank of Vietnam issued Directive No.01/CT-NHNN dated January 10, 2017 on the implementation of the monetary policy and safe and sound banking operations in 2017. Accordingly, in the year 2017, the SBV continues to manage the monetary policy in a proactive, flexible manner in combination with fiscal and other macroeconomic policies in order to control inflation in accordance with the set target (averagely 4%), stabilize macro-economy, support economic growth at about 6.7%, while ensuring the liquidity of credit institutions and the economy, and stabilizing money market. The total liquidity and credit growth are targeted to increase by about 16-18 % and 18% respectively with flexible adjustment in line with the practical movement.
In the first five months of 2017, the SBV continues to manage synchronously and proactively monetary policy instruments in order to curb inflation in accordance with the set targets, stabilizing the macro-economy, thereby contributing to supporting economic growth at a reasonable level, ensuring the stability of monetary market.
1. Results of monetary policy management and banking operations in the first five months:
The SBV managed synchronously and flexibly monetary policy instruments, strictly control the monetary target for the aim of controlling inflation, supporting foreign exchange rate while ensuring liquidity for credit institutions to meet credit demand, stabilizing interest rates and supporting Government bond issuance at low interest rate. By May 19, 2017, total liquidity increased by 4.4% as compared to that of 2016, capital mobilization was up by 4.11%, ensuring liquidity of credit institutions, meeting demand on credit growth of the economy and investing in Government bond.
- Interest rates:
The mobilizing and lending rates of credit institutions commonly remained steady. In the context of rising inflation expectation, the demand on credit and Government bond issuance continued remaining at high level, the disbursement of investment fund was still low, putting pressure on the credit demand and interest rates. The SBV had conducted several decisive measures to stabilize the interest rates such as controlling proper liquidity to support credit institutions stabilizing interest rates; directing credit institutions to save costs, improving efficient business to stabilize mobilizing rates and strive to reduce lending rates.
As a result, the key interest rates were stable, several commercial banks applied preferential interest rates for some lending programs. Currently, the average lending rates commonly were 6-9% p.a for short-term loans and 9-11% p.a for medium- and long-term loans; the lending rate for short-term loans was 4-5% p.a, applicable to those customers who have good loan-repayment track records, as well as strong and transparent finances.
The forex market in the first five months was basically stable, the foreign exchange movement was in line with the managing target of the SBV, thereby contributing to stabilizing the macro-economy, facilitating business to be active in production and business, preventing exchange rate risk effectively. Foreign currency liquidity is improved, the legal demand of individuals and organizations were met promptly and adequately. The SBV bought foreign currencies from credit institutions to raise the state international reserves, and the system of credit institutions continued buying foreign currencies from customers. In comparison with the end of 2016, the exchange rates were relatively stable (in which the central rate increased by 1.02%, the inter-bank exchange rates decreased by 0.24%, the exchange rates quoted by Vietcombank was down by 0.15% as compared to the end of the previous year).
- Lending activities:
The SBV continued to implement proper credit solutions in line with the targeted credit growth in association with improving credit quality, concurrently the SBV continued directing credit institutions to implement solutions to create favorable condition in accessing credit fund, concentrating credit into production and business; strictly controlling credit of risky fields; issuing Circular on regulating lending activities of credit institution with the aim of increasing the accountability and transparency in lending activities, facilitating customers to approach credit fund. Particularly, credit growth remained good since the beginning of the year, without little credit growth at the beginning of the year and stasis increase in the last few months of the year as previous years. Particularly, by May 25, 2017, credit growth increased by 6.53% as compared to the end of 2016; credit growth of the same period of 2016 increased by 5%, that of 2015 was up by 4.5%. Lending interest rates was stable, credit demand serving production and business was met sufficiently.
In order to support SMEs in production and business, the SBV has implemented several solutions to facilitate credit institution to expand credit for SMEs as following:
+ SBV issued Document No.62/NHNN-TD dated January 4, 2017 to direct the SBV branches to manage loans for SMEs.
+ To issue Document No. 2178/NHNN-TD dated March 30, 2017 to direct: (i) Credit institutions, foreign bank branches to effeciently implement credit expanding solutions in assosiation with controlling credit quality, balancing and meeting priority fields including: agriculture, rural, export, supporting industry, SMEs, high-tech enterprises; (ii) Require SBV branches to closely collaborate with local authority and agencies to implement economic programs and projects in the location in combination with investing banking credit, directing local credit institutions to deploy effectively the program of enterprise – banking connection, credit program oriented by the Government, to accelerate assigned solutions and tasks under Directive No. 01/CT-NHNN dated January 10, 2017.
+ To instruct the SBV municipal and provincial branches and credit institutions to enhance the implementation of Program on connecting commercial banks and enterprises. Accordingly, for the first 3 months of 2017, the whole banking sector organized 130 dialogues to handle and ease difficulties for enterprises. The total amount of new loans was equivalent to VND 290,000 billion in line with the commitment of the Program, the total amount of disbursement was VND 190,000 billion for over 20,000 enterprises; rescheduling payment term of loans amounted VND 16,000billion for over 500 enterprises. Besides, commercial banks applied other supporting forms such as interest rate and fee reduction... for about 400 enterprises with the total outstanding of VND 8,700 billion.
+ To continue coordinating with ministries and agencies to review, formulate and revise policy mechanism for supporting enterprises, especially small and medium enterprises (SMEs), through Guarantee Fund and Fund on developing enterprises in order to enhance corporate financial capacity, specifically: (i) coordinating with Ministry of Planning and Investment to formuate and complete draft Law on Small and Medium Enterprises; to resolve difficulties, research and revise Decision No. 601/QĐ-TTg dated April 17, 2013 of the Prime Minister on establishing Fund on developing SMEs; (ii) coordinating with the Ministry of Finance to resolve difficulties and review policy on credit guarantee for SMEs through Vietnam Development Bank (VDB) and Local credit guarantee funds for SMEs in accordance with the instruction of Deputy Prime Minister Vuong Dinh Hue in Document No. 425/TB-VPCP dated December 22, 2016.
- About the restrucuring of the system of credit institutions and NPL resolution:
On the basis of approval and directives of Political Bureau and the Government, the SBV is urgently formulating Plan of impelementing the Scheme on restructuring the system of credit institutions in conjunction with NPL resolution for 2016-2020 period; advising the establishment of Steering Board headed by Prime Minister.
About NPL resolution, under the strict monitoring of the SBV, credit institutions actively improved their asset quality and NPL resolution, especially they paid efforts to self resolve NPLs through various measures of strictly collecting debts, asset liquidation, risk provisioning...Therefore, NPLs continued to be controlled and effectively resolved; by March, 2017, NPL ratio in internal balance sheet was at 2.55%.
About the completion of legal framework in the process of restructuring and NPL resolution: At the third session of 14th National Assembly (NA), under the authorization of the Prime Minister, the SBV Governor reported the NA the draft Law on revising several articles of Law on Credit Institutions in order to revise regulations on authority, method of restrucutring weak credit instiutions, measures of supporting the recovery of weak credit institutions. Moreover, revised Law on Credit Institutions aims at creating legal basis for resolving NPLs and weak credit instiutions in a prudent manner and the principle of ensuring legal righs of depositors and safe and sound banking sector. Revised Law on Credit Institutions does not change legal responsibilities of institutions and individuals who violate laws, then resulting in NPLs and weak performance of credit institutions. The handling of violations is implemented in line with laws.
Besides, the SBV submitted the NA Resolution on NPL resolution and Law on revising several articles of Law on Credit Institutions. If be approved, NA Resolution will resolve obstacles of current legal basis related to NPL resolution and mortgage, debts of credit institutions, thereby helping credit institutions extend credit to the economy and reduce operational cost to considering reduction in lending interest rate.
About payment:
On December 30, 2016, Prime Minister issued Decision No. 2545/QĐ-TTg on approving Scheme on non-cash payment in Vietnam for 2016-2020 with specific objectives and 10 groups of measures of enhancing non-cash payment in the economy. Implementing Decision No.2545, the SBV promulgated Decision No. 637/QĐ-NHNN dated March 31, 2017 on Plan of implementing Decision No.2545. In this decision, the SBV Governor assigned tasks and roadmap to relevant SBV entities to achieve objectives set by the Prime Minister.
2. Orientations and measures of managing monetary policy in the coming time:
On the basis of objectives set by the NA and the Government, and the key tasks of the banking sector, the SBV has managed monetary policy in an active and flexible manner in conjunction with fiscal policy and other policies in order to ensure macro stability and curb inflation; concentrated on implementing following measures:
- Closely monitoring macro-economic situations, international and domestic money market for proactive and prompt conduction of managing measures. Managing moneatary policy instruments in a consistent and flexible manner to stabilize money market, thereby creating favourable conditions for restructuring securities and capital markets, stabilizing forex market, controlling total liquidity and credit growth rate in line with set directions.
- Managing interest rate in accordance with macro–economic developments, inflation and money market in order to stabilize common interest rate. Continuing to instruct credit institutions to save operational costs and improve business efficiency to stabilize mobilizing rate and try to reduce lending rate to share difficulties with borrowers while ensuring financial safety.
- Continuing to manage the central exchange rate in a flexible manner in collaboration with measures and monetary policy instruments to stabilize exchange rate; prudently consider to sell foreign currencies to intervene forex market in order to ensure supply and demand balance, mitigate sharp fluctuations of exchange rate which cause psychological impact on the market, prevent speculation and hoarding of foreign currencies which put negative impact on the objective of stabilizing domestic currency value and macro-economy.
- Continuing to direct credit institutions to concentrate credit on priority fields and effective production and business sectors in line with Government’s directions, implement featuring credit programs such as rice, coffee, marine product industry…, and provide loans to encourage agricultural development applied high-tech and clean agriculture, research for revising Decree No. 55/2015/NĐ-CP on credit policy for agricultural and rural development; coordinate with relevant ministries and agencies to implement credit polices, resolve debts to tackle difficulties for individuals in 4 provinces in the central region; continue to cooperate with ministries and agencies to resolve difficulties and obstacles to enhance the implementation of credit policies for social housing in accordance with Decree No. 100/2015/NĐ-CP dated October 20, 2015. At the same time, the SBV instructed credit institutions to continue implementing policies to facilitate enterprises and individuals to get access to bank loans for production and business, especially for pig raising and animal feed manufacturing...
- Continue to closely combine monetary policy with fiscal policy as well as other macro-economic policies to achieve the objectives of curbing inflation, stabilizing macro-economy and support growth rate.
Translated by Le Hang – Thoa Le