Banking Industry Launches Various Business Support Solutions

On July 10, 2023, the State Bank of Vietnam (SBV) raised the systemwide credit growth target to about 14% for credit institutions in 2023 to provide more credit funds for the economy in a timely manner. Lending interest rates have also been reduced by 3%. This move aims to remove business difficulties for companies as directed by the Government in the context of lower-than-expected economic growth in the first six months and tough access to medium and long-term capital sources in the economy.

Credit institutions are committed to reducing costs and cutting fees to lower lending interest rates to support businesses

Lending interest rates reduced by 3%

At the conference on the preliminary review of banking operations in the first six months and tasks to be executed in the last six months of 2023 held by the State Bank of Vietnam (SBV), Governor Nguyen Thi Hong said that the banking industry faced many challenges and difficulties in the first half 2023. The global and domestic economies remained complicated and unpredictable, and central banks around the world continued to tighten monetary policies to control inflation by raising interest rates. This was exacerbated by the ongoing Russia-Ukraine conflict and bank collapses in the United States and Europe earlier this year.

Domestically, the downturn of the bond market and property market placed pressure on banks. Meanwhile, business activities of enterprises and people contracted, and nonperforming loans increased, while solutions to deal with these difficulties have not worked as expected.

In that context, the SBV operated a firm, accommodative, active, timely and effective monetary policy to control inflation, stabilize the macro economy and support and prioritize growth. According to SBV Deputy Governor Dao Minh Tu, the central bank made four interest rate cuts by 0.5-2%. In late June 2023, the average interest rates on new Dong deposits and loans at commercial banks fell by 1.0% from the end of 2022. Commercial banks actively adopted preferential credit programs/packages to lower lending rates by 0.5-3.0%, depending on borrowers.

As of June 30, 2023, the credit balance in the economy was over VND12,490 trillion (US$543 billion), an increase of 4.73% from the end of 2022. Credit continued to be channeled into government-prioritized sectors and fields to actively assist the country’s GDP growth. Credit for potentially risky sectors was controlled.

However, according to Prime Minister Pham Minh Chinh, besides good outcomes, banking operations still faced limitations and inadequacies. Interest rates, especially lending rates, remained high. Credit balance slowly increased while many companies could not access new credit. Bad debts continued to be handled but still exposed many potential risks. The progress of handling weak credit institutions was still slow.

Regulations must be quick, flexible and effective

Prime Minister Chinh stated that the continued complicated and unpredictable world situation was forecast to exert heavy impacts on many fields. Domestically, difficulties and challenges outweighed opportunities and advantages while macroeconomic pressures were considerable.

He noted that banks are the lifeblood of the economy, adding how the blood vessels work depends on the performance of the banking industry regulated by the SBV. Therefore, its regulations must be quick, timely, flexible and effective.

“Commercial banks themselves are also businesses. Their leaders and administrators have further resolved, further endeavored and more decisively and effectively acted to lead their banks against the wind to rise up. It is necessary to place common interests and public interests above all,” he said.

On the other hand, banks and businesses have a symbiotic, causal relationship. They necessarily understand each other to have better cooperation. Capital is a matter of life for enterprises and lending is a vital activity for banks while the former is the main customer of the latter. This is a mutually beneficial symbiotic relationship, so it needs to be implemented according to the market mechanism based on the principle of “harmonized benefits, shared risks”.

Regarding the main tasks and solutions for the second half of 2023 and beyond, according to the Prime Minister, the banking industry needs to apply monetary policy management solutions actively, flexibly, promptly and effectively to remove business difficulties, promote growth, stabilize macroeconomic performance and control inflation. The sector must grasp actual situations to adopt appropriate priorities and consistently and accommodatingly use four tools: Reserve requirement, refinancing, interbank market and open market.

The banking sector is committed to reviewing and improving monetary and banking institutions, mechanisms, and policies. It will finalize the draft Law on Credit Institutions (amended) and submit it to the National Assembly for voting at the 6th session in October 2023. The sector will also study and review amendments to the Law on the State Bank of Vietnam and the Law on Deposit Insurance. It will perfect laws on security, safety, and confidentiality in e-banking. The sector will focus on accelerating decentralization and simplification of administrative procedures. It will quickly issue decrees and circulars on matters that Circular 02 has not yet regulated for corporate bonds.

Regarding credit, the Prime Minister requested the central bank to focus on managing credit growth with a reasonable structure and provide credit for the economy. The central bank should implement consistent and drastic solutions to reduce interest rates, especially lending rates. It should determine the credit growth limit and direct the review of lending conditions and criteria to make necessary adjustments to enhance access to credit for people and businesses, especially small and medium-sized enterprises (SMEs). The SBV should also speed up the implementation of the interest-support credit package of VND40 trillion and the social housing loan package of VND120 trillion.

Credit institutions are committed to reducing costs and cutting fees to lower lending interest rates. They will review and revise lending conditions and criteria, reduce, simplify, and publicize lending procedures to increase credit access for businesses and people.

In addition, the Prime Minister called on the business community to make more efforts to cut costs, reform corporate governance, develop effective business and production plans, apply advanced technology, foster digital transformation, develop green production, green growth, circular economy, environmental friendliness and meet domestic and international market requirements. At the same time, he requested central and local agencies to closely accompany and coordinate with SBV, local credit institutions, and the business community to tackle business difficulties. They should review and improve mechanisms, policies, and laws; reform administrative procedures; and reduce costs for people and businesses.

By Quynh Chi, Vietnam Business Forum