State Bank of Viet Nam helps stabilise economy
(12-08-2008)
During yesterday’s online interview on the Government’s website, central bank Governor Nguyen Van Giau re-affirmed the capability of the State Bank of Viet Nam (SBV) to effectively stabilise the foreign exchange (FX) market whenever the market showed an unbalanced supply-demand ratio due to sentiment and speculation.
What is the central bank’s master plan to balance the target of controlling inflation and the target of ensuring sufficient capital for enterprises?
Governor of the State Bank of Viet Nam Nguyen Van Giau. — VNA/VNS Photo The Anh
Facing the global economic bailout and the complicated changes in the domestic economy since early this year, the Government is determined to achieve three major targets: control inflation, stabilise the macro-economy, and ensure social security and stable development. Of these, controlling inflation is the first priority.
The SBV has simultaneously implemented five measures to manage the monetary market and banking system.
First, the SBV has withdrawn money from circulation, increased compulsory reserves in commercial banks, issued compulsory treasury notes, and controlled the growth of total payment methods and credit. All these measures are aimed at curbing total demand and consumer prices.
Second, the central bank has renewed the interest-rate management mechanism, and increased the prime interest rate, the refinancing rate and the discount rate. This was to create a reasonable interest rate corridor for outstanding loan growth, and to pursue positive interest rates [deposit rates higher than inflation rates].
Third, the central bank has managed a flexible exchange rate policy. The SBV has widened the daily trading band on inter-bank market to +/-2 per cent from +/-1 per cent against the interbank rate. The central bank also co-operated with authorities to check and stop speculation and illegal trading on foreign currencies in order to stabilise the FX market.
Fourth, the central bank raised support for commercial banks via open market operations and other refinancing methods. Capital was prioritised for manufacturing, export, major national economic projects, agriculture and rural development.
Fifth, the SBV has improved monitoring of the monetary market and credit institutions, and created a modern information system. So far, credit institutions are safe with capital adequacy ratio (CAR) higher than the regulated level.
The Prime Minister has emphasised that the central bank is the major tool for curbing inflation. So is it necessary to improve the central bank’s role?
As a state administrator on money and the banking system, the central bank plays an important role in stabilising currency values, controlling inflation, and boosting socio-economic development under a socialist orientation.
In Decision No 112/2006/QD-TTg, the Government ratified the master plan for developing Viet Nam’s Banking system towards 2010 and 2020. The project is designed to develop the central bank into a modern one in accordance with the standards of other regional central banks.
In the near future, the SBV will continue to perfect the legal framework of the banking business.
As a rule, demand on goods imports risen sharply in the latter part of the year, which results in high demand for foreign currency. How does the SBV plan to stabilise the exchange rate at the end of this year?
The ongoing measures of the Government to control the trade deficit lead us to estimate that by the end of this year, it will be less than US$20 billion. At this level, foreign reserves from many sources are sufficient to compensate for the trade deficit.
Moreover, remittance by the end of the year is expected to increase. Foreign direct investment disbursement and revenue from exports are also expected to move up. Thus, supply of foreign currencies is predicted to be in surplus and the USD/VND exchange rate is expected to be stable.
In case the market shows an unbalanced supply-demand due to sentiment or speculation, the central bank will be able to quickly return it to the right track.
In the coming months, the SBV will continue to flexibly manage the exchange rate policy based on market realities so as to encourage exports and limit imports.
Many experts assume that granting licences to set up new banks is rather ‘open’, particularly for a small economy like Viet Nam. What is the opinion of the SBV in this issue?
Implementing the government’s order, the central bank had stopped granting licences to new banks in 1996 to strengthen the existing banking system. However, pursuant of World Trade Organisation commitments, after 2006, Viet Nam was not be able to refuse licences to new banks.
Under international regulations, the SBV issued Decision No 24/2007/QD-NHNN on June 7, 2007 regulating the setting up of new banks. In the first seven months of this year, the SBV granted operating licences to a mere two banks -- LienViet Bank and TienPhong Bank.
Facing monetary difficulties in local and global markets, the Government has ordered the central bank to adjust the criteria for setting up joint stock commercial banks. As this is still ongoing, the central bank has paused granting licences to new banks.
The criteria will be changed with a view to ensuring that any new bank must have a strong financial capacity and be able to compete in this era of international economic integration. — VNS
