Maintaining Active, Flexible Monetary Policy

11:08:14 AM | 1/27/2024

In response to the anticipated difficulties and challenges of 2023, the State Bank of Vietnam (SBV) adopted proactive and flexible measures from the outset of the year to address external factors.

The banking sector is urged to maintain a close watch on both domestic and international economic trends, ensuring that policy responses are timely and appropriate

The economy faced numerous challenges in 2023. Globally, high inflation led many central banks to continue their tightened monetary policies. The U.S. dollar (USD), oil prices, and gold prices exhibited complex trends. Some banks in the U.S. and Europe experienced collapses. Domestically, the real estate and corporate bond markets continued to grapple with difficulties and obstacles, exerting pressure on the capital needs of the banking system. The mass withdrawals at Saigon Commercial Joint Stock Bank - SCB in late 2022 significantly impacted liquidity and market sentiment, prompting credit institutions to exercise increased caution in decision-making and credit management and balancing

In the face of these complex and unpredictable developments, the SBV implemented an active, flexible, prompt, and effective monetary policy. It coordinated this policy harmoniously and closely with fiscal policy and other macroeconomic policies, and advised a policy shift from “tightening” to “easing, flexible.”

The SBV actively supported businesses and individuals in overcoming difficulties, restoring production and business activities, and boosting economic growth through many specific solutions and policies. Notably, the SBV cut policy rates four consecutive times and managed credit growth drastically in the fourth quarter and at the end of 2023. By December 31, 2023, credit had grown by 13.71% from the end of 2022.

In 2023, the SBV excelled in its role of administering and ensuring the stability and safety of the credit institution system, while continuing with the drastic restructuring of the same. The central bank proactively reviewed and enhanced monetary and banking institutions, promptly identifying and eliminating obstacles and deficiencies in mechanisms and policies to support the development of key markets. SBV concentrated its efforts on completing and submitting the draft Law on Credit Institutions (amended) to the National Assembly. It promptly issued Circulars 03, 06, and 10 to support the development of the corporate bond market and the real estate market. SBV administered, oversaw, and ensured that the credit institution system and monetary and forex markets remained fundamentally stable and under control.

In 2023, bank deposits reached a record high of more than VND13,500 trillion. The Vietnamese Dong (VND) maintained its stability in the regional and global markets, despite depreciating by about 2.9%. The safety of banking operations was guaranteed, and the targets for digital transformation were successfully met.

At a review conference on the banking industry in 2023 and the planned activities for 2024, Prime Minister Pham Minh Chinh acknowledged the good results achieved, while also highlighting the shortcomings and difficulties encountered in monetary policy management and banking activities. He urged the banking industry to further consolidate and strengthen solidarity, coordination, and assistance within the banking system, between different levels, sectors, and agencies with the banking system, and between the banking system and businesses and individuals.

In 2023, the banking sector adhered to the government’s “5 determinations”: overcoming challenges, taking action, protecting proactive officials, facilitating business, and striving for the best results in 2024.

The Prime Minister specifically urged the banking sector to maintain a close watch on both domestic and international economic trends, ensuring that policy responses are timely and appropriate. He emphasized the need for the sector to aggressively and effectively introduce credit solutions to alleviate difficulties and stimulate the growth of production and business. He also stressed the importance of implementing the “Restructuring the credit institution system and handling bad debts in the 2021-2025 period” in a rigorous manner. He called for an acceleration of reforms and an enhancement of the effectiveness and efficiency of banking inspection, examination, and supervision. This is to ensure that risks, shortcomings, and violations are promptly identified, prevented, and strictly dealt with, thereby ensuring security and discipline in the monetary and banking markets. He encouraged the banking sector to expedite digital transformation and innovation in banking activities, non-cash payments, and expand the digital ecosystem to promptly meet economic needs.

Recognizing the banking industry as the lifeblood of the economy, the Prime Minister acknowledged that the tasks and requirements for the sector in 2024 and beyond will be challenging. However, he expressed his confidence that the banking industry will continue to strive to successfully fulfill all tasks. He expressed optimism that the sector will achieve better results in 2024 than in 2023.

By Gia Huy, Vietnam Business Forum