SBV been managing monetary policy in a quick and prompt manner, actively removing difficulties for businesses and people

Following closely the policy of the National Assembly and the Government as well as the developments of the macro-economy, the domestic and foreign marketsDeputy Governor Nguyen Thi Hong emphasized that in the first months of 2020 “the SBV has operated the monetary policy in a proactive, flexible and prudent manner, in close coordination with the fiscal policy and other macroeconomic policies in order to control inflation, maintain the stability of the macro-economy, the money and foreign exchange markets, and support the economic recovery in the wake of the Covid-19 pandemic."

Stable interest rates and exchange rates - ensuring credit quality

In the complicated context of the Covid-19 pandemic and the global economic recession, the Governments and the central banks in many countries have cut down the key interest rates and implemented a lot of measures to stimulate the economy and provide fiscal support on a large scale. Domestically, the market has been controlled stablly; the inflation target is likely to be achieved; however the economic growth has been significantly affected by Covid-19. Following the guidelines and directions of the Government and the Prime Minister on implementing the tasks and solutions to remove the difficulties for the economy, ensuring social security to cope with the Covid-19 pandemic, in the beginning of the year, the SBV had twice cut down the key interest rates with a total reduction of 1-1.5% p.a. to support liquidity for the credit institutions, allowing the credit institutions to access low-cost capital from the SBV; reduced the ceiling interest rates for deposits of under 6 months maturities by 0.6-0.75% p.a., and cut down the ceiling interest rate applied to short-term loans in the priority sectors and fields by 1% p.a., currently standing at 5.0% p.a., in order to help reduce the cost of borrowing for businesses and people.

Regarding the exchange rate management, since the beginning of 2020, despite some periods of negative impacts caused by the Covid-19 pandemic and the fluctuations in the international market, the foreign currency market has remained stable, the USD/VND exchange rate has been developing flexibly in line with the market conditions, the macroeconomic and the currency balances. The market liquidity has been ensured, the legitimate demands for foreign currencies have been fully and promptly met; the SBV has been continuing to buy foreign currencies to supplement the State foreign exchange reserve.

According to Mr. Pham Chi Quang - Deputy Director General of the SBV Monetary Policy Department, in the recent months, the SBV has managed the monetary policy tools in a flexible and synchronous manner to maintain the market stability. The liquidity of the credit institution system has been ensured. As of September 15, 2020, the total means of payment (M2) increased by 7.58% as compared to the end of 2019.

In the first two months of 2020, the credit growth was quite low (only 0.01%by end of January, and 0.2% by end of February). “Although the capital and the liquidity of the credit institution system was abundant, ready to provide sufficient and timely credit to the economy, the credit demand was very weak due to the impacts of Covid-19, thus the credit growth was low as compared to the same period in 2019. But by end of August 2020, the credit growth reached 4.75% and by September 16, 2020, the credit growth got to 4.81%,” said Mr. Pham Chi Quang.

Regarding the credit operations, following closely the Covid-19 developments, the SBV has controlled the credit scale in accordance with the set-out targets, ensuring the credit quality, and creating favorable conditions for the businesses and people to access credit capital in order to quickly restore their production and business operations. Especially, the SBV always attaches great importance to the administrative reforms, ensuring the central principle of creating favorable conditions and saving time and money for the people and businesses when accessing credit capital and banking services. The Public Administration Reform (PAR) index in 2019 of the SBV was the highest score (95.4/100 points), and for the fifth consecutive year ranked 1st among the ministries and ministerial-level agencies.

The credit programs conducted under the directions of the Government, and the government bonds have continued to be strongly implemented by the credit institutions; the capital demands of the key projects have been promptly met; credit for risky areas has been strictly controlled in line with the orientations of the SBV.

Mr. Nguyen Tuan Anh, Director General of the SBV Department of Credit for Economic Sectors, said, “The impacts of the pandemic has resulted in customers having difficulties paying bank loans on time, with total affected debt balance of about VND 2,270 trillion, accounting for over 25% of the outstanding loans of the whole system The SBV has been focusing the support on production and business operations, the priority fields and sectors such as: credit for exports has increased by 4%; credit for agriculture and rural areas has increased by 3.29%; credit for small and medium enterprises has increased by 3% ... "

The Director General of the SBV Department of Credit for Economic Sectors further added that Covid-19 has made strong impacts on all sectors and areas of the economy. For the banks, the biggest impact has been the significantly low credit demand. Although the banks have offered many low-interest credit packages, and the SBV has also loosened room for all of the banks that need and has the capacity to increase their credit, the number of customers wanting to access bank loans has been very limited.

Leaders of the SBV Departments speaking at the Conference

Regarding the credit growth, Deputy Governor Nguyen Thi Hong further shared that at the beginning of the year, the SBV set a credit growth target of 14%, but due to the impacts of the Covid-19 pandemic, the demand for capital has been very low. Therefore, when compared with the same period in 2019, the SBV will consider adjusting the credit growth target for each of the credit institutions.

Also according to the SBV Deputy Governor, for risky areas such as real estate, corporate bonds, the SBV has always been monitoring closely to ensure that credit does not fall into risks and to minimize bad debts. “In the coming time, the SBV will continue to closely monitor the macroeconomic and the monetary developments; on that basis, and depending on the health of the banking system, the liquidity levels of the banking system at different times to decide on possible adjustments of the monetary policy instruments, including the interest rates, if needed, to support the economy, while still ensuring the targets of inflation control and safety of the banking system," Deputy Governor Nguyen Thi Hong affirmed.

Positive changes in the restructuring of the credit institution system in association with bad debt handling

The restructuring of the credit institutions has also achieved important results. Until now, basically all restructuring plans associated with the handling of bad debts of the credit institutions have been approved by the SBV; the financial capabilities of the credit institutions have been strengthened; the charter capital has gradually increased; the quality of governance of the credit institutions has gradually been improved to be on par with the international practices; the credit institutions have met the safety ratios and limits as prescribed by law; the situation of cross-ownerships, cross-investments among the credit institutions has been resolved effectively; the disciplines and rules in the money market and the banking sector have been reinforced and consolidated, contributing to the stability and ensuring the financial and monetary security.

Speaking at the Conference, Mr. Tran Dang Phi, Deputy Chief Inspector of the Banking Supervision Agency, said: “The quality of governance and management at the credit institutions has been gradually improved, getting on par with the international practices; most of the credit institutions have applied the capital adequacy ratios in accordance with Basel II standards as prescribed in Circular No. 41/2016/TT-NHNN.” On-balance sheet non-performing loan ratio has been maintained at less than 2%. In addition, from 2012 to the end of July 2020, the whole credit institution system had resolved about 1,113.7 trillion VND of bad debts; during the 7 months of 2020, the total amount of bad debts resolved was 63.7 trillion VND.

Especially, the issuance of Resolution 42 has facilitated more effectively the handling of bad debts by the credit institutions, with the total amount of bad debts identified in accordance with Resolution 42 and resolved between August 15, 2017 to May 31, 2020 reaching an average of 7.15 trillion VND per month, a 3.63 trillion VND higher per month compared to the monthly average of bad debt handling between 2012 to 2017 by the credit institution system before the effectiveness of Resolution 42 (around 3.52 trillion VND per month on average).

In addition, the amount bad debts resolved by customers’ repayment has tended to increase, with more customers being more willing and cooperative in repaying the credit institutions. Accordingly, the proportions of bad debts resolved by customers’ repayment over the total resolved on-balance bad debts as determined in accordance with Resolution 42 from the effective date of the Resolution to December 31, 2019 and to May 31, 2020 are 40.5% and 40.1% respectively, much higher than the average proportion of bad debts resolved by customers’ repayment over the total resolved on-balance bad debts between 2012 to 2017 (22.8%).

Implementing synchronously the solutions to promote non-cash payments

In the payment area, according to Mr. Nghiem Thanh Son, Deputy Director General of the SBV Payment Department, the legal framework for payment operations has continued to be reviewed and supplemented, facilitating the development of non-cash payments. The banks have introduced a lot of modern, friendly and convenient products and services that can bring practical experiences and benefits to the customers; and also step-by-step developed a centralized, standardized, integrated digital infrastructure to create a digital ecosystem in various sectors and fields. Payments for public services via banks have continueed to be widely applied, etc.

Overview of the Conference

As a result, after 7 months of 2020, the total number of transactions via the interbank electronic payment system increased by 13.61% in transaction value as compared to the same period of 2019. The retail transactions cleared by the switching system increased by 74.07% in volume and 106.9% in value over the same period of 2019. The number and value of card payment transactions in 7 months of 2020 increased by 29.7% and by 15.8% respectively over the same period in 2019; transactions via the Internet increased by 39.1% in value over the same period of 2019; the number and value of payment transactions via mobile phones increased by 184.2% and by 186.3% respectively over the same period of 2019.

Interest waivers and reductions on the outstanding loans of VND 1,180 trillion to support Covid-affected customers

Implementing solutions to support the Covid-affected customers, right after the emergence of the disease outbreaks, the SBV proactively took actions in the early stage, followed closely the situation and directed the credit institutions to monitor and evaluate the impacts of the pandemic on their customers, develop action programs and scenarios to initiate measures to remove difficulties for the borrowers. The SBV also instructed the National Payment Corporation of Vietnam (Napas) and the credit institutions to waive and reduce the payment service fees; waive transactions fee for online money transfers to support the prevention and control of Covid-19 and the drought relief efforts via bank accounts; waive and reduce payment service charges for beneficiaries through online banking payments.

Following the instructions of the SBV, the system of credit institutions has promptly implemented various measures to support their customers and achieved a lot of positive results. Regarding the credit support in accordance with Circular No. 01/2020/TT-NHNN: As of September 14, 2020, the credit institutions had rescheduled the repayment terms for more than 271,000 customers with a total loan outstanding of 321 trillion VND; waived and reduced the interest rates for nearly 485,000 customers with the total loan outstanding of 1,180 trillion VND; especially, the credit institutions have provided new loans with preferential interest rates (commonly 0.5 - 2.5% lower than before Covid) with the total accumulated loan outstanding since January 23 of 1,600 trillion VND for 310,000 customers.

Vietnam Bank for Social Policies (VBSP) has extended debt payment maturities for more than 162,000 customers with the total loan outstanding of about 4,067 billion VND; adjusted repayment terms for more than 75,200 customers with the total loan outstanding of approximately 1,600 billion VND; provided new loans to more than 1.4 million customers with the total loan outstanding of over 55 trillion VND. Regarding the waivers and reductions of the payment service fees and charges, it is estimated that the total amount of payment transaction fees and charges waived and reduced by the credit institutions through Napas by the end of 2020 is about 1,004 billion VND. It is expected that by the end of 2020, the collection of payment service fees and charges by the SBV will go down by 285 billion VND in supporting the credit institutions to further cut down on the interbank money transfer service fees for the businesses and people.

Besides, the whole banking system has proactively reduced and waived fees for a number of payment services; offered free money transfers via bank accounts to support the prevention and control of Covid-19 and the drought relief efforts; waived and reduced payment service charges for beneficiaries through online banking payments. Furthermore, promoting the spirit of compassion and empathy, “good leaves cover torn leaves”, the officials and civil servants of the banking sector has donated about 800 billion VND to the social security activities nationwide, of which about 300 billion VND was used to support the Covid-19 control, and to buy Covid-19 biological tests.

Orientations for managing the monetary policy and banking operations in the coming time

On the basis of the targets of the National Assembly, the Government as well as the domestic and foreign macroeconomic developments, the SBV will continue to actively and flexibly manage the monetary policy in harmony with the fiscal policy and other macroeconomic policies in order to control inflation, maintain the macro-economic and market stability, support rapid economic recovery, focusing specifically on:

(i) Managing the open market operations; regulating the liquidity of the credit institutions in a reasonable manner to stabilize the market; Operating the refinancing tool flexibly, in accordance with the macro and monetary developments, the capital needs of the credit institutions and the Government's policies to support the economy in the wake of the Covid-19 pandemic;

(ii) Managing the interest rates and the exchange rates in accordance with the macro balances, the inflation and market developments, and the monetary policy targets; ensuring market stability, the exchange rates, the macroeconomic stability; controlling the inflation; promoting production and business, and consolidating the State foreign exchange reserve when the market conditions are favorable;

(iii) Directing the credit institutions to continue to strongly reduce their costs in order to further lower the lending rates, fueling the economy; simplifying the internal procedures; creating conditions for new customers to borrow without lowering loan standards; ensuring credit quality, safety; maintaining healthy operations of the banking system; promptly handling with difficulties and problems related to credit mechanisms and policies in order to support those affected by Covid-19, and enabling the businesses to access credit capital for their operations; controlling strictly credit for potentially risky areas, consumer credit and foreign currency loans;

(iv) Monitoring and assessing the impacts of the Covid-19 pandemic on the feasibility of the targets for the credit institutions as set out in the Restructuring Plan, as well as the impacts on the safety of the system in order to propose appropriate solutions; conducting reviews and evaluations of the implementation of Project 1058 as a basis for building a new Project on restructuring the system of credit institutions in the 2021-2025 period;

Deputy Governor Nguyen Thi Hong answering questions from correspondents at the Conference

(v) Continuing to develop and improve the legal corridor for electronic payments to meet the requirements for new business models and products/services based on information technology, in which the focus is on digital banking, digital payment; continuing to study and introduce new payment models in the rural, remote and disadvantaged areas in association with the implementation of the National Financial Inclusion Strategy; promoting electronic payments in the Government sector, the public services, etc.;

(vi) Promoting the implementation of communication and financial education programs in order to raise public knowledge and skills in using financial products and services, the accessibility to financial and banking products and services; contributing to promoting non-cash payments, and enhancing financial inclusion.

Answering some questions from the correspondents about the solutions of the banking industry to provide sufficient credit support for the economy while still ensuring capital safety, Deputy Governor Nguyen Thi Hong shared that the SBV always stands ready to fully meet all capital demands, and to regulate the liquidity appropriately to promptly meet the needs of borrowing for the people and businesses. Regarding the reduction of the key interest rates, SBV Deputy Governor Nguyen Thi Hong said: “In the wake of the Covid-19 pandemic, the central banks in countries around the world have conducted in total 185 key interest rate cuts. Vietnam has reduced the key interest rates four times. In the coming time, the SBV will continue to adjust the interest rates if necessary.”

Deputy Governor Nguyen Thi Hong affirmed that in the last months of 2020, the SBV will continue to manage the monetary policy in a proactive and flexible manner, in harmony with other macroeconomic policies in order to control inflation, maintain the stability of the macro-economy, the money and foreign exchange markets, and facilitate the economic recovery.

VA