Banking in 2011

This year the State Bank of Vietnam (SBV) has set targets of 23 per cent credit growth against 2010. What is the logic behind this?

Setting 2011 credit growth of over 20 per cent against 2010 reflects the banking authorities’ intention in macroeconomic management and their growing attention towards credit quality. In early 2010 we expected inflation would be kept at eight per cent and credit growth 25 per cent. However, by the year’s end, inflation hit two-digit level of around 12 per cent and credit growth exceeded 27 per cent.

The targets of 23 per cent credit growth and seven per cent inflation set for 2011 mean budget over-expenditure and public debt would be reduced while the flows of goods should be increased and diversified. There is a connection between investment and inflation. Enormous investments would exert influence on inflation. However, investment creates economic growth.

Reducing credit growth in 2011 to 23 per cent is to reign in inflation. Of course, low credit growth would cast certain impacts on business development and GDP growth. However, I believe if the quality of credit was maintained, GDP growth in 2011 would still reach the set target of 7-7.5 per cent.

When will banks’ interest rates be reduced in your view?

If inflation is kept at a suitable level in the coming period, banks’ interest rate will surely go down. As the Vietnamese government has committed to keeping inflation in the first half of 2011 at 3.5 per cent against 2010, interest rates would soon be pulled down. However, due to the retardation feature of policies, I think the interest rate will begin to go down since the second quarter of 2011.

Besides, it is also important to pull down the deposit rate on the US dollar as it is also a factor with adverse impacts on the Vietnamese dong. The value of the US dollar is augmented when the deposit rate of the dollar stays high. Besides, many businesses want to source US dollar-loans amid high dong lending rates. Thereby, banks had raised the dollar deposit rate to lure in greenbacks. In the US, the dollar deposit rate is less than one per cent, meanwhile, it is over five per cent in Vietnam, which is unreasonable.

What opportunities and challenges does the banking sector face in 2011?

During the recession, not only banks but assorted businesses were all in sorts of difficulties. Compared to other fields and sectors, however, banks have certain advantages and in fact a number of banks had reported high revenue and profit figures in 2010.

However, a closer eye will be set on banks’ operations in 2011 after the Law on Credit Institutions and the Law on State Bank of Vietnam took effect from January 1, 2011.

Banks with good management and flexible tactics can always see opportunities in difficulties and know how to make the most of these opportunities.

As of 2011, Vietnam will offer wider market access to foreign players in the finance and banking sector and foreign banks will be treated equally as local ones. Is that a big concern to local banks?

Foreign banks with their wealth of experiences, while operating in their home countries, are weighty competitors to local banks with their high level of professionalism. However, I think competition is important in that it helps local banks grow mature and sharpen their competitiveness. Underperforming banks will be pulled out or be merged while strong banks will grow further.

The Law on Credit Institutions and the Law on State Bank of Vietnam came into effect from January 1, 2011. How will they impact on banking operations?

Impacts are inevitable to ensure the whole system’s safety. However, in my view, the birth of Circular 13/2010/TT-NHNN in May 2010 and later Circular 19/2010/TT-NHNN in September 2010 to amend some articles in Circular 13 was the premise for banks to implement these two new laws. These new laws will help banks raise their professionalism while promoting their competence.