Engaging extensively to support credit institutions

Standing Deputy Governor of the State Bank of Vietnam, Dao Minh Tu

What criteria do you use to evaluate the outcomes in the banking sector and what has been done in the last two years?

The State Bank of Vietnam (SBV) has lowered its operating interest rates three times in a row, compelling credit institutions to lower their lending rates as one of the major initiatives to support vulnerable customers.

Compared to the pre-pandemic levels, the annual percentage rate of loan interest has decreased by 1.81 per cent. Furthermore, several circulars issued by the SBV have served as guidelines for restructuring repayment terms while cutting or eliminating interest and fees.

Debt payback periods, interest rates, debt groups, and problems faced by debtors impacted by the pandemic are all to be restructured, exempted, and reduced per legislation.

The SBV has also encouraged credit institutions to provide incremental loans to prioritised sectors, such as production and agroforestry.

As of now, approximately $87.5 million had been disbursed to all cities and provinces by Vietnam Bank for Social Policies (VBSP), allowing more than 2,300 customers to pay wages for temporary closures and stagnating salaries to resume production for over 530,000 employees.

Credit institutions concurrently implemented a 10 per cent reduction in lending interest rates from VBSP for impoverished households, ethnic minorities, and policy beneficiaries.

Despite the central bank’s synchronous solutions to fulfil genuine production, business, and consumer demands, the credit process has not been fully developed. What are the reasons behind these challenges?

In the first place, customers’ lack of capacity to organise production and business, as well as the urgent need for consumer loans, makes it difficult for them to demonstrate the purpose of using capital and repay debts.

Furthermore, as information provided by the customer is opaque, and as there is currently no standardised database on the population and custodians, many fail to prove their financial security to access official credit channels. Some customers continue to seek black credits to urgently address their prohibited necessities such as gambling, lottery, and narcotics.

Credit institutions are also plagued by their scepticism about ensuring that there is no or minimal bad debt, resulting in lending processes that are overly rigid in certain cases.

Nonetheless, I believe that this is not a significant roadblock since the competition among credit institutions is severe which, in turn, diversifies loan products and maximises customers’ experience.

The lingering pandemic, particularly the recent fourth wave, has made it difficult for borrowers to demonstrate their repayment ability. Thus, many people in the low-income group have opted for unofficial sources of loans, specifically predatory loan services. In addition, many individuals have excess funds that they might utilise for high-interest loans.

Infractions in cyberspace relating to black credit activities have become more sophisticated as state management solutions in the digital environment remain constrained, such as determining the origin of social network accounts and preventing unauthorised subscribers, as well as controlling mobile apps and websites related to loan sharks.

At the same time, there remains a presence of civil borrowing relationships, the provision of consumer finance entities that are not regulated by the SBV.

While there are undoubtedly inadequacies that must be addressed in the short run, how will the banking sector fare in 2022?

To facilitate all agencies in combating, preventing, and limiting black credit, the whole banking industry will continue to encourage and implement radical remedies along with the SBV’s action plan in the coming years.

Emphasis will be put on production, agriculture, and rural growth, as well as science and technology-based businesses. The SBV would also take a firm grip on illicit consumer financing businesses, along with putting in place procedures to ensure debt recovery conforming to legal requirements. Simultaneously, the central bank would make it easier for individuals and businesses to access legal banking capital sources, thereby assisting financial institutions in their transition.

There must be extensive engagement from all levels and sectors to stem the tide of black credit, including a rapid acceleration of population databases by the Ministry of Public Security. Thus, financial institutions may expedite the evaluation and distribution of loans swiftly.

Press agencies and the media should participate directly in delivering accurate information about legal credit versus black credit, so people may be better aware of predatory loans’ adverse consequences.

Credit expansion is vital for economic recovery, but inflation must be reined in to sustain macroeconomic stability. How will the SBV pursue these contradictory goals simultaneously this year?

A proactive and flexible monetary policy will be adopted in 2022, in close coordination with other macroeconomic measures, to keep inflation under the 4 per cent average objective set for the new year ahead. Meanwhile, credit orientation is expected to rise by around 14 per cent in 2022, with modifications made based on actual developments and conditions.

Particular attention will be paid to the stringent supervision of credit in risky segments, and various remedies to alleviate concerns faced by those impacted by COVID-19 and natural catastrophes.

The SBV will also craft more advantageous circumstances for borrowers through a series of dramatic administrative reforms. Small and medium-sized businesses could benefit from equitable and transparent access to finance.

The whole sector is heading towards technology-driven transformation to improve customer experience, especially in organisational structure, paperless banking services, and a modern digital government and economy.

The banking sector, under the strict supervision of the Vietnamese government and prime minister, shall efficiently execute solutions for managing monetary policy and banking operations to contain inflation and stabilise the macroeconomy.

Likewise, the SBV, along with commercial banks, will deploy bolder remedies to help precarious individuals and organisations weather the storm. All efforts are directed at gradually reverting to a new normal for our country, with an explicit significance on economic recovery and growth.