Vietnam Sets Annual Credit Growth at 18-20 per cent for 2006-2010

The country sets a target of attaining average credit growth of 18-20 per cent per annum for the 2006-2010 period as defined in a newly-approved banking development scheme through to 2010 and orientation until 2020.

 

The schemed approved on May 24 regulates the necessity to clear up and quickly improve the financial capacity of commercial banks; continue scaling up chartered capital; thoroughly settle non-performing loans (NPLs) and clean up the balance sheets of credit organizations.

 

The statute said that in addition to retained profit, share issuance, mergers, and repurchases, commercial banks can boost capital by issuing bonds. Foreign investors are allowed to acquire these bonds, taking part in managing domestic banks. In the long term, the state will hold the majority stake in only a few equitised state banks.

 

The scheme sets nine specific figures for banking activities in the 2006-2010 period. Namely, inflation must be lower than economic growth; broad money supply growth to average at 18-20 per cent per year; the M2/GDP ratio by the end of 2010 to be 100-115 per cent; cash transactions outside the banking system/M2 not to exceed 18 per cent; average credit growth is set at 18-20 per cent per year; capital adequacy ratio (CAR) will not be less than 8 per cent; the NPL ratio out of total lending balance targets at less than 5 per cent; the banking supervision standards will be Basel I and the international minimum reserve will be fixed at 12 weeks of import.

 

Some commercial banks will be required to hold an equity of $800 million-$1 billion. The central bank also targets at founding at least a multi-functional financial group operating in the domestic and international markets.

 

Regarding forex reserves, the statute points out that forex management measures must be consistent and centralized at the central bank. The open forex policy will be practiced to encourage export and to attract forex inflows inwards to Vietnam via the banking system.

 

Another important point in the scheme is promoting the status of the Central Bank of Vietnam. The SBV is liable to closely cooperate with relevant agencies, particularly the Ministry of Finance, to regulate the monetary policy.

 

Reportedly, the aforementioned project was submitted to the government last year however not until now, was it improved.

 

International financial institutions consider such a scheme as a commitment of the Vietnamese government to improving the banking sector before the Vietnam’s entry into the World Trade Organization (WTO).