Bank

Unleashing the Economy’s Potential with Agile Monetary Policies

The State Bank of Vietnam (SBV) needs to expeditiously continue lowering lending rates in the economy through monetary policy management tools and regulatory measures within its purview.

Administrator

6 July, 2024

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Professor Hoang Xuan Que, PhD., Head of the Research Group at the National Economics University, proposes recommendations for monetary policy to alleviate economic challenges.

Advocate for flexible credit limit allocation to commercial banks with strong credit growth potential.

Specifically, the Research Group at the National Economics University suggests that the State Bank of Vietnam (SBV) should reduce all administered interest rates by 0.5%, decrease credit information fees at CIC, and request competent authorities to lower deposit insurance fees.

Implement a flexible monetary policy

The SBV should introduce an additional preferential credit package sourced from refinancing funds with low-interest rates for commercial banks to lend to prioritized sectors and areas in the economy. Flexibility in allocating credit limits to commercial banks with strong credit growth potential is essential.

“Ideally, the SBV should abolish credit limits immediately in 2024 and replace them with mechanisms and measures to ensure credit safety,” said Professor Hoang Xuan Que, PhD.

The SBV should urgently deploy the “Information Management System for Supporting Management, Supervision, and Fraud Risk Prevention in Payment Activities” (SIMO system) and enhance the “Online Data Collection System” (ODCS system) to connect, query, collect, and monitor the reserve account balances of payment intermediary service providers.

Close coordination between the Ministry of Finance and the SBV is crucial in fiscal and monetary policy implementation; increasing the chartered capital of state-owned commercial banks, managing the bond market, taxation of credit institutions, and other related aspects of the safe development of the money market.

Notably, the Research Group at the National Economics University recommends reducing the number of directive documents, administrative meetings, and formalities. It is imperative to promptly amend and supplement legal documents to enhance access to bank credit.

Extend the implementation of Circular 02 until the end of 2024 and simultaneously amend the circulars governing credit activities of credit institutions to align with the Law on Credit Institutions of 2024.

The SBV should promptly submit to the Government amendments to Decree No. 24/ND-CP dated April 3, 2012, and Circular No. 16/2022/TT-NHNN regulating gold business activities, in line with the Law on Credit Institutions of 2024 and market realities.

“We propose abolishing the monopoly on gold bar import, production, and trading to ensure the connection between the domestic gold market and the international gold market. The SBV needs to steadfastly manage exchange rate stability,” emphasized Professor Hoang Xuan Que, PhD.

Additionally, the SBV should focus on continuing the rational reorganization of its apparatus, proactively transferring many underutilized public assets, establishing stringent mechanisms for public service units, and enhancing the effectiveness and efficiency of monetary policy implementation and banking activity management.

Accelerate the restructuring of credit institutions

To promote restructuring and improve the governance of credit institutions, the Research Group at the National Economics University proposes the following solutions:

The SBV should reduce all administered interest rates by 0.5%, decrease credit information fees at CIC, and request competent authorities to lower deposit insurance fees.

Firstly, the SBV needs to expedite the restructuring of credit institutions towards the goal set for 2025. It is crucial to comprehensively address cross-ownership issues in joint-stock commercial banks and the “backyard” companies of board members.

“Commercial banks should be required to stop lending to ‘backyard’ companies and projects of conglomerates. Although it is challenging to detect, every effort must be made to eliminate cross-ownership and control in commercial banks. It is necessary to accelerate the equitization of Agribank, restructure the three commercial banks that were bought at zero dong, SCB, and some other weak joint-stock commercial banks,” suggested Professor Hoang Xuan Que, PhD.

Secondly, the SBV should provide stringent guidance on increasing the chartered capital and safety ratios of credit institutions. Effective and synchronized measures are crucial for bad debt resolution.

Thirdly, credit institutions must enhance their governance and risk management capabilities, decisively address bad debts, and improve the effectiveness of internal control. Concentrated lending to companies and projects within the ecosystem or “backyard” of conglomerates, which can compromise the safety and soundness of the bank, should be discontinued.

Fourthly, credit institutions should reduce expenses to lower lending interest rates, eliminate unnecessary fees, and support businesses and individuals in recovering and developing production and business activities. It is imperative to promptly review projects and enterprises to ensure timely credit provision to viable and efficient projects, share and support businesses and borrowers in overcoming difficulties, and continue the capital cycle to repay debts.

Simplify loan application procedures and publicly disclose fees and interest rates to create more favorable conditions for businesses and individuals to access bank credit. Reduce lending interest rates for near-poor and newly escaped poor households to an average of about 5%, and decrease interest rates for policy borrowers at the Vietnam Bank for Social Policies (VBSP) by 1.5-2% compared to current rates.

Nguyen Viet