Looking back on the last five years, what were the most outstanding results and key efforts behind the whole sector?
|Dao Minh Tu, Deputy Governor of the State Bank of Vietnam
In the past five years, the Vietnamese economy has secured a favourable position and gathered strength thanks to its achievements throughout the last 35 years based on the national doi moi. However, difficulties have also piled up due to geopolitical conflicts, trade tensions between major countries, the pandemic, natural disasters, and climate change. Nevertheless, the unified political institutions, with the consensus of the people, businesses, and the economy, have achieved important milestones.
These outstanding economic imprints have contributed strongly to the banking system – the lifeblood of the economy – and are reflected in the following four main areas.
Firstly, the effectiveness and efficiency of the monetary policy have been enhanced. The State Bank of Vietnam (SBV) has flexibly managed monetary policy tools to stabilise the markets, contributing to controlling inflation in accordance with the National Assembly’s target and supporting sustainable economic growth. Moreover, the SBV’s actions have enabled safe and effective credit management, while focusing on production and business, especially in potentially risky areas.
The SBV has also reduced the base interest rate to ensure a stable macroeconomy, economic growth, the interests of borrowers and depositors, stable exchange rates, and a maintained value of VND.
Secondly, the restructuring of the institutional credit system and bad debt settlement have made a fundamental breakthrough by troubleshooting and resolving issues in the current legal framework.
The system’s stability and safety were maintained throughout 2020, with most credit institutions reaching a capital adequacy ratio in accordance with the law (about 11.65 per cent). Meanwhile, the financial capacity of credit institutions has been strengthened, credit quality has been improved, the non-performing loan ratio was maintained below 3 per cent, and the institutional credit system increased in size, while the management and governance capacity of credit institutions has gradually been improved, further approaching international practices.
Thirdly, the payment system continued its stable performance, with great progress in the development of non-cash payments. The SBV has built and improved the legal framework for secure payment activities, and credit institutions have researched and applied many new and modern technologies, such as payments on mobile devices, fingerprint authentication, other biometrics, and one-time passwords.
Fourthly, the SBV implemented administrative reforms, so that in the following five years, we will see a significantly improved business environment in the banking sector, contributing to enhancing national competitiveness.
What milestones in particular were reached last year?
Last year came with unprecedented challenges. COVID-19 has been spreading around the world, causing large shocks to global social and economic activities, and impeding many businesses and countries.
The SBV has requested credit institutions to review and evaluate the impact of their services on borrowers, to enhance programmes and actions to ultimately remove difficulties for their customers.
With the issuance of Circular No.01/2020/TT-NHNN last March on debt rescheduling, exemption or reduction of interest rates and fees, a legal basis has been created for credit institutions to restructure their repayment terms, as well as exempt and reduce interest rates and fees, and reduce the pressure for customers to pay back debts. A few weeks later, Directive No.02/CT-NHNN instructed credit institutions to strengthen the implementation of such solutions to further remove difficulties for customers affected by the pandemic.
In addition, zero interest rates were enacted for a total fund of VND16 trillion ($695 million) that employer could use to pay salaries, following the spirit of the guidance of the government and the prime minister.
At the same time, credit institutions were instructed to concentrate all resources on accelerating reforms and shorten loan applications to improve customers’ access to these. In addition, the SBV’s Board of Directors cooperated with the leaders of local people’s committees to organise nearly 20 conferences that aimed at connecting banks with businesses in all six key economic regions of the country. The objectives here have been to listen to the needs of businesses and their associations, and promptly remove difficulties. Businesses operating in sectors that were most affected by the pandemic were prioritised over others.
These early actions of the SBV and the banking sector as a whole have led to positive results for the business community and the economy.
Based on these results, on what footing is the banking sector entering the new year?
This year will be the first to implement the country’s Socioeconomic Development Plan for the 2021-2025 period – a new stage of development for the country. While the global situation remains unpredictable, the banking sector has prepared itself to proactively overcome all difficulties and complete all tasks assigned by the Party, the National Assembly, and the government.
At the same time, the SBV aims to modernise itself and work with credit institutions to develop a more transparent credit system that is sustainable and on par with global standards. With these goals in mind, there are a series of tasks and solutions to be tackled.
The improvement of the banking system’s legal framework will continue to create a convenient and clear basis for the administration of monetary policy and banking operations, following business laws, the market economy, development requirements, and international practices.
The SBV will consolidate its organisational structure to streamline its operations in accordance with international practices and standards to improve the business environment, the credit rating, and the confidence of people and businesses when interacting with the banking sector.
Furthermore, the SBV’s monetary policy will continue to aim at controlling inflation, stabilising the value of the currency, and contributing to maintaining macroeconomic stability, while also creating the conditions to improve the efficiency of capital mobilisation in the economy and promoting sustainable economic growth.
Credit policies will also be managed with a focus on production and business while following the government’s policy to tightly control potentially risky areas. Meanwhile, efforts in sustainable development, climate change, and green growth will be included in the credit programmes and projects.
The SBV will also strengthen the effectiveness and efficiency of the banking inspection and supervision system, especially among weaker credit institutions, to ensure the safety of the banking system and strengthen the application of technology with a focus on training and the improvement of human resources.
The institutional credit system will continue to be restructured, focusing on handling bad debts and the shortcomings of the system. At the same time, competitiveness will be enhanced, both in terms of financial and governance capacities and by better aligning with international standards and practices.
Moreover, the development of an international trade centre and digital banking services will receive much attention in the next five years. Meanwhile, the national payment infrastructure will be further enhanced to meet the increasing needs of consumers in the digital economy, in addition to strengthening management and supervision for payment services that offer secure, efficient, and transparent solutions.
Additionally, the SBV will focus on effectively implementing the National Comprehensive Financial Strategy until 2025, with a vision to 2030, so that by the end of 2025 all of the strategy’s goals can be fully achieved.
Lastly, we will continue to strengthen global cooperation to enhance our position in the international arena and contribute to overall performance.
Credit growth and effects in 2020
Credit growth showed signs of recovery from the second quarter last year as the demand started to increase again. As of December 23, credit growth amounted to a 10.54-per-cent increase compared to the end of 2019, up 11.93 per cent over the same period of that year.
Credit continued to focus on production and business, with credit for export increasing by 10.4 per cent, for agriculture and rural areas by 9.8 per cent, and small- and medium-sized enterprises 11 per cent, while the demand for most key projects was promptly met.
Credit institutions, including financial companies and foreign banks, have tapped deep into their internal resources to reduce costs and support businesses to prevent salary cuts and losses amid the difficulties of the year.
Up to now, the sector has restructured the repayment terms for about 270,000 customers affected by COVID-19, with a loan balance of nearly VND355 trillion ($15.4 billion) and interest rate exemptions and reductions for nearly 590,000 customers with outstanding loans of over VND1 quadrillion ($43.5 billion).
Meanwhile, 137 companies profited from disbursed loans of more than VND20.72 billion ($900,000), which supported outstanding salary payments for more than 5,200 employees.