A guiding hand to direct banks

Banking system credit growth in 2012 was very slow compared to a targeted 8-10 per cent. Please give us an update on the situation?

In the first 10 months of 2012, credit grew slower than targeted and by the end of October, growth stood at 3.48 per cent.

This ponderous rate resulted from weak demand from enterprises. High inventory levels and poor consumption deterred under pressure enterprises from borrowing, while other enterprises are not eligible for loans. Meanwhile, people are watching their pennies and reducing demand for consumer loans.

Moreover, credit institutions after a long period of high credit growth, are now being restructured and they have to actively mobilise capital and reduce credit growth to restructure their assets and liabilities to ensure good financial health, corporate governance and payment capacity.

Especially, joint stock commercial banks are more cautious in selecting new customers. They have limited lending to a number of business sectors that are in difficulty and tightly controlling foreign currency lending in accordance with the government’s anti-dollarisation policy.

Although credit growth has cooled, the credit structure has been positively reshaped. Capital was mainly lent out to priority areas such as exports, agriculture and small-and medium-sized enterprises (SME) contributing to macroeconomic stability.

By the end of September 2012, credit growth in priority areas was higher than the economy’s overall credit growth. Credit to the rural and agricultural sector increased by 5.3 per cent, to exporters by 10.52 per cent credit and 0.36 per cent to the supporting industry against  the end of 2011. Only credit to SMEs decreased by 0.8 per cent compared to the end of last year, but increased 14.9 per cent against the end of March, 2011.

Total outstanding loans to discouraged fields [such as real estate and securities sectors] only accounted for 4.8 per cent of total outstanding loans to the economy and much lower than 11.13 per cent in late 2011.

In the context of the fight against inflation which has been under control, what measures will the State Bank deploy in 2013 to promote credit growth so as to achieve 2013’s economic growth target of 5.5 per cent, which was just approved by the National Assembly?

In 2013, in line with the government’s direction on curbing inflation, stabilising the macroeconomy and supporting economic growth at a higher level than 2012, the central bank will apply a flexible and prudent monetary policy, and closely and synchronically coordinate monetary tools.

For interest rate policies, the central bank will continue to manage them in an active, flexible and efficient way consistent with macroeconomic conditions. The State Bank will gradually reduce lending interest rates to a reasonable level consistent with reducing inflation, aiming at stimulating credit growth and supporting economic growth, enabling enterprises to access banks’ capital and supervise the implementation of low-lending rate loan policy for priority areas.

For our credit policy, following our assessment of banks’ operations and corporate governance, the central bank will control credit growth of each credit institution to create conditions for enterprises to approach bank capital. We will ensure banks’ capital is mainly invested in the agricultural sector and rural areas, production of export goods, supporting industries, SMEs, enterprises using intensive labour and in efficient projects and business plans.

What about the State Bank’s direction in managing the foreign exchange market into 2013?

In 2013, the world economy is forecast to continue facing difficulties, with a slow recovery in global trade. The world’s economic growth is  expected not to be much higher than in 2012.

Besides the positive results we achieved in 2012, the domestic economy is still in difficulty. The main objectives of our monetary policy in 2013 are still curbing inflation, stabilising the macroeconomy and supporting economic growth at a reasonable level.

Therefore, the central bank will implement measures to control exchange rates and the foreign exchange market based on market movements. In accordance with foreign currency supply and demand and other macro factors such as interest rates, inflation, balance of payments, we aim to stabilise the dong in the long-term, improving Vietnam’s foreign exchange reserves and continuing fundamental anti-dollarisation solutions. In addition, the State Bank will centralise foreign currencies into the credit institution system to meet the economy’s demand for foreign currencies.

In addition, the central bank will implement gold market management measures under Decree 24/2012/ND-CP in order to limit the goldenisation of the economy and encourage people to convert from gold to money to invest in manufacturing, business and economic development.

How have local credit institutions been restructured?

Relating to the handling of weak banks, the State Bank did not force any banks to restructure. We just deployed the first step to make them understand their weaknesses and risks, then let them find their own way to restructure. They can restructure themselves if they can manage by selling their assets, finding new shareholders or partners that can contribute a reasonable capital amounts from transparent sources.

Until now, nine banks that must be restructured include GPBank, Navibank, Western Bank, TienPhongBank and Trust Bank. Saigon Commercial Bank (SCB), Tin Nghia Bank and Ficombank merged in late 2011. Another merger between Habubank and Saigon-Hanoi Bank happened in August this year.

In a recent comprehensive inspection the State Bank deployed from the beginning of 2012, besides inspecting weak joint stock commercial banks that must be restructured, the State Bank’s inspection programme was also implemented in  other 27 credit institutions.

Based on the inspection results, many problems emerged, especially the non-performing loans issue, and many credit institutions being dominated by  groups of shareholders.

Moreover, the capital borrowed by those shareholder groups and customers related to them make up a huge proportion of the total outstanding loans of a credit institution, maybe even up to 90 per cent, creating more losses for banks. This is a very serious violation of the Law on Credit Institutions and the guiding documents of the State Bank.

Mergers and acquisitions is only one point in the scheme to restructure the banking sector during 2011-2015. There are many other points that we are implementing positively such as gradually improving the financial health of commercial banks. Recently, by improving liquidity and setting up adequate loan loss provision, banks’ financial health has got better. The State Bank will soon issue a series of new legal documents to meet the needs of the new development phase.