Operation of monetary policy significantly contributes to help the economy achieve objectives

13:52-04/05/2018

The Governor of the State Bank of Vietnam, Mr. Le Minh Hung, affirmed at the Government Online Conference with localities, focusing on discussion on solutions to implement socio-economic tasks and state budget planning for 2018. The conference took place on December 29th in Hanoi.

Fully agreeing to the report on the Government's economic and social management in 2017, Governor Le Minh Hung said that, according to some heads of provinces, ministries and sectors at the conference as well as international monetary and financial organizations, banks and international credit rating agencies, the government was very successful in both economic stabilization and economic growth stimulation in 2017.

In particular, the Government was very determined in maintaining macroeconomic stability and controlling inflation, enhancing confidence of the economy and investors, especially foreign investors. The confidence was for the consistency of the government's policy stance on keeping macroeconomic stability, controlling inflation at a low level to create a stable environment for sustainable economic development in medium and long term. This was an encouragement to create momentum for economic development in 2017 and the following years.

Governor Le Minh Hung said that on the basis of firm policy stance of the Government, in 2017, the State Bank of Vietnam (SBV) closely coordinated planning and operating monetary policy with other macroeconomic policies, especially fiscal policy, to maintain macroeconomic stability and control inflation at a low level, while actively supporting economic growth.

Firstly, as reported by the Government, the core inflation rate in 2017 stood at an average of only 1.41%, proving that the SBV’s monetary policy operation was in the right direction.

Secondly, according to general guidance of the Government and the Prime Minister, the SBV used synchronously operating tools to reduce the policy rate last year. As a result, credit institutions reduced their lending rates by 0.5-1% in 2017. Many credit institutions applied short-term lending rates of 4-5% per annum to clients with healthy financial status and high credit ratings and implemented programs of medium and long term loans for prioritized sectors with lending rates down to about 8% per annum. "This has a significant meaning in facilitating the reduction of business costs of the economy and supporting growth," Governor Le Minh Hung emphasized.

Thirdly, in addition to credit expansion, the banking system strongly focused on ensuring the credit quality, capital supply to support economic growth, but was very prudent to avoid adverse effects on macro balances, to curb inflation and maintain the banking safety.

In particular, credit structure concentrated mainly on production, business, especially on some key economic sectors such as processing and manufacturing industry, for which the credit volume was estimated to increase by over 30%, for high-tech entrepreneurs up by 28%, for agriculture and rural development up by 21% by the end of the year. Credit for risky areas was strictly controlled according to the guidance of the Government and the SBV.

Fourthly, for management of exchange rates and the  foreign exchange market, the total foreign exchange reserve officially reached nearly USD 52 billion. This meant a record amount of roughly USD 13 billion was bought in 2017 to increase the foreign exchange reserve.

"The operation of foreign exchange rates policy and market helped provide sufficient foreign currencies to meet the economy’s demand, ensure supporting exports and control the stability of the foreign exchange market. Especially, the increase of foreign exchange reserve was very significant in strengthening national prestige, building investors’ confidence " - Governor Le Minh Hung happily announced.

Fifthly, under the guidance of the Government, the entire banking system was very active in speeding up the process of restructuring and dealing with bad debts.

Accordingly, the SBV reported to the National Assembly to approve the Resolution 42 on the pilot settlement of bad debts and submitted to the Prime Minister for approval the roadmap of restructuring the system of credit institutions associated with dealing with bad debts until 2020. It also submitted to the National Assembly at its 4th session to adopt the Law on amending and supplementing some articles of the Law on Credit Institutions. The accelerated restructuring process associated with dealing with bad debts of credit institutions contributed to ensure the stable and secure operation of the banking system, contributing to the process of restructuring the economy and to supporting economic growth.

Sixthly, in implementing the guidance under Resolution 19 and Resolution 35 of the Government, administrative reforms in the banking system achieved positive results, directly contributing to support businesses and people to develop production and business. Especially, many credit institutions boosted their administrative reforms, renewing, simplifying and publicizing loan procedures, cutting down fees and unnecessary expenses...As a result, the "Getting Credit" indicator of Vietnam was ranked 29/190 by the World Bank, rising by 3 notches to the fourth in ASEAN. At the same time, the SBV took the lead among ministries in the Public Administrative Reform Index (PARindex) for the second consecutive year.

"The efforts and positive results of the banking system last year played an important role in enhancing macroeconomic stability, creating a favorable environment for the Government to meet its all objectives, one of which is economic growth - a bright spot in Vietnam's successes in 2017", the Governor affirmed.

For the year 2018, Governor Le Minh Hung said that this would be a particularly important year for the banking sector with the implementation of the Resolution 42 of the National Assembly on the pilot settlement of bad debts and the Law on amending and supplementing some articles of the Law on Credit Institutions.. Therefore, the SBV would guide and support credit institutions with its best efforts to accelerate the handling of bad debts under the Resolution 42 to actively recover debts and guide the drastic implementation of the credit institutions restructuring under the Scheme approved by the Prime Minister. Besides, measures to improve financial capacity and credit quality, transform management and administration models, enhance transparency of credit institutions’ operations in accordance with international practices and Vietnam’s condition, ensure security and safety of banking operations would also be implemented. This would positively contribute to hit the economic growth target set by the Government.

In addition, the SBV would continue to operate the monetary policy in an active and flexible way in line with market developments to ensure macro balances, thereby supporting the economic growth target set by the Government. In particular, the SBV would strengthen the bad debts resolution, the restructuring of credit institutions. The SBV also implemented active and flexible policies such as extending the roadmap for application of the maximum ratio of short-term capital for medium and long-term loans of 45% from 01/01/2018 and 40% from 01/01/2019. A circular was already promulgated to continue foreign currency lending.

Together with liquidity regulation, the SBV would instruct credit institutions to continue reducing operating expenses and improve business efficiency, which would be the basis to reduce lending rates in the coming time. This might help entrepreneurs reduce costs to support better economic growth.

At the same time, the SBV would continue to manage the exchange rates and foreign exchange market in a stable manner; increase the State's foreign exchange reserve, direct credit expansion along with safety and efficiency, promote credit for production, business and prioritized sectors; foster the implementation of preferential credit programs for sectors and areas according to the Government's policy, especially agriculture and rural development according to Decree No. 55/2015/ND-CP; continue to develop high-tech agriculture and clean agriculture under Resolution No. 30/NQ-CP and coordinate with localities to accelerate the program on connection between banks and businesses.

Governor Le Minh Hung expressed his confidence that with the Government's general guidelines in the Draft Resolution 01 as well as the support and coordination of localities, the banking system would continue to achieve positive results that support the socio-economic development of the country in the coming time.

Research and InternationalCooperation Department