Central Bank Reviews 2004 Operation, Outlines Tasks for 2005

Central Bank Reviews 2004 Operation, Outlines Tasks for 2005

The State Bank of Vietnam (SBV) in 2004 actively brought out measures in monetary management policies to help boost economic growth and restrain inflation and continued reforms to prepare for international integration.

Last year, SBV continued to use key interest rates such as prime lending rate (unchanged at 7.5 per cent per year), discount rate (downed to 3 per cent from 4.2 per cent in August), and rediscount rate (cut from 6 per cent down to 5 per cent in August) to manage interest rates on loans and deposits offered by commercial banks.

Therefore, average interest rate of local credit institutions rose by only 0.36-0.6 per cent per annum for loans and deposits in Vietnamese dong while rate on deposits in US dollar increased by 0.15-0.3 per cent and rate on dollar lending remained unchanged.

In 2004, the central bank succeeded in managing forex rates with the US dollar/Vietnamese dong rate climbing slightly by less than 1 per cent for the whole last year. With the result, the bank also helped curb depositors from converting deposits in local currency to US dollar.

Regarding to open market operation, the central bank injected VND63 trillion (US$4 billion) in local currency into local commercial banks via 123 sessions, up around 190 per cent against total sum in 2003.

From early last July, to control overheated credit growth (to curb CPI rise), the central bank raised reserve requirements on short-term deposits in Vietnamese dong to 5 per cent from 2 per cent and in foreign currencies to 8 per cent from 4 per cent. It also lifted reserve requirements on dong deposits with terms of 12 to 24 months to 2 per cent from 1 per cent.

With the moves, in 2004 SBV partly helped keep inflation at 9.5 per cent, compared with previously rate forecast by the ministries of 12 per cent.

Currently, the SBV is developing new method of forecasting inflation to help it carry out monetary management policies more effectively.

Last year, the central bank continued to complete forex management policies and build a scheme of reducing dollarization in the economy.

It also started to renew credit mechanisms under the orientation of removing State subsidies and creating a fairer credit market to better serve all economic sectors.

According to the central bank, last years scheme of restructuring local banking system saw achievements. So far, SBV in coordination with the Ministry of Finance and the Ministry of Planning & Investment (MPI) has injected VND10.921 trillion (US$695.6 million) for five state-owned commercial banks (SOCBs) for recapitalisation.

It is also completing scheme of raising SOCBs' equities for the government’s approval. Besides, SBV is urgently building schemes of privatising two state-owned banks of Vietcombank and Mekong Housing Bank.

After successfully completing the first phase of World Bank (WB)-funded banking & payment system modernisation project, the central bank last year prepared necessary conditions for the implementation of the project in the second phase. The project is said to help improve effect of using WB’s loans and improve competitiveness for Vietnamese banks.

To boost and develop non-cash payment, the SBV submitted the government for approval draft decree on the issue.

Another important task in 2004 carried out by the central bank was preparation for WTO entry. SBV completed banking service offers for countries in bilateral and multilateral negotiations. Vietnam succeeded in discussion with Eu and proceeded to talk with China and the US.

With the intermediate role, SBV cooperated with relaxant state bodies to attract ODA loans from international financial institutions such as IMF, WB and ADB for local development investment. In 2004, Vietnam signed with WB 6 agreements with total loans worth US$705 million, bringing total lending to US$4.8 billion into 41 projects. It also inked with ADB three deals worth US$154 million in 2004, enhancing total loans signed with the ABD so far to US$2.7 billion into 45 projects.

In 2005, the Vietnam’s central bank will focus on carrying out flexible monetary policies. It will continue liberalisation of monetary policy because it’s necessary for Vietnam to integrate into the international financial and monetary community.

The central bank plans to synchronously use financial tools and derivatives to curb inflation and stabilise macroeconomics. It will also focus on completing legal framework for the birth and development of new financial tools to boost operation of the monetary market.

SBV will continue renovate credit policies to be more suitable to international practices. The bank will issue new regulations on classifying of debts, debt rescheduling and risk provision. SBV will prevent credit growth from rising too fast and boost deployment of schemes of privatising Vietcombank and MHB.

In 2004, Vietnam’s banking system reached credit growth rate of 25.1 per cent with outstanding loans in local currency up 24.1 per cent and lending in foreign currencies up 28.3 per cent.

The country now has five State-run commercial banks, 38 joint stock commercial banks, four joint venture banks, 28 foreign bank branches, and some 44 foreign bank representative offices.

• Le Dung