Headquarters of the State Bank of Vietnam in Hanoi (Photo: VNA) Hanoi (VNS/VNA) - The State Bank of Vietnam (SBV) will hold itsbenchmark refinancing and discount rates at 6.25 percent and 4.25 percent,respectively, in addition to maintaining its 14 percent credit growth targetfor the remainder of 2019, experts forecast.
“Weexpect the SBV to keep its monetary policy on hold for the remainder of 2019.Monetary policy transmission in Vietnam remains weak and this informs our viewfor the SBV to continue to manage financial risks through non-interest ratemeasures such as loan directives and macro-prudential measures,” analysts fromFitch Solutions told Vietnam News.
On theone hand, the analysts said, Vietnam’s five-year government bond yield stands at3.85 percent, below the SBV’s discount rate of 4.25 percent, and this continuesto suggest that monetary policy transmission is still not optimal due to excessliquidity in the banking system.
Inaddition, bank lending rates are high and appear to be on an upwards trend. Forexample, interest rates at Techcombank are between 6.80 percent and 9.83 percenton large VNĐ-denominated corporate loans in June, compared to between 6.40 percentand 9.00 percent in March. Moreover, high deposit interest rates at 6.80 percentfor tenures above 12 months for both Agribank and Vietcombank also suggest thatlending interest rates are likely to be high at these banks.
Speakingabout monetary policy in the second half of this year, SBV Deputy Governor NguyenThi Hong said the SBV would continue to follow a pro-active, flexible andcautious monetary policy as well as working in close conjunction with fiscaland other policies to control inflation, sustain the macro-economy and supporteconomic growth.
Accordingto Fitch analysts, macro-prudential measures will continue to bethe method of choice for the SBV overthe coming quarters to manage financial stability risks inthe economy.
Under theSBV’s regulations, the proportion of short-term capital to be used for mediumand long term lending by banks has to be reduced to 40 percent in 2019 from 45 percentin 2018. This has already seensome smaller and less well-capitalised banks raise interest rates offered onlong-term time deposits since the first quarter of this year with the aim ofattracting the capital needed to meet this requirement.
In June,the SBV released a draft circular seeking public comments on furthermacro-prudential measures the central bank intends to introduce to managefinancial risks in the economy, with a specific focus on managing the risk oflending to the real estate segment.
Thecircular encompassed a number of changes, including a further reduction to theratio of short-term capital for medium and long term loans to 30 percent byJuly 1, 2020, with the aim of helping the central bank manage liquidity risksin the banking sector. To be sure, this regulatory change would apply to loansin all sectors and not just the real estate sector.
Otherregulatory changes proposed include raising the risk weight ratio for homepurchase loans worth 3 billion VND and above and loans worth between 1.5billion VND and 3 billion VND at 150 percent and 100 percent, respectively, from50 percent at present. Housing mortgage loans worth less than 1.5billion VND and loans for the purchase of social and government supportedhousing projects will remain at the risk weight ratio of 50percent.
According to the SBV,the aim of these changes is to channel real estate credit towardborrowers with genuine housing needs instead of speculators andto balance the development of low-cost commercial and socialhousing as demand in the low-cost segment still outstrips supply.
Fitchanalysts also expect the SBV to focus efforts on banking sector reforms,explaining this was because credit growth was one of the SBV’s main monetarypolicy tools.
The SBVtailors credit growth quotas for each bank, with healthier banks (assessedbased on the bank’s operations and ability to grow credit sustainably) beingassigned a higher quota, vice versa, with the aim of regulating overall creditgrowth within its annual target.
The SBVhas so far also instructed credit institutions to implementa host of administrative reforms over the pastcouple of years, which include the simplification of borrowing procedures,the provision of adequate guidancefor borrowers, and the improvement of restructuring plansassociated with the handling of bad debt.
"Webelieve that a strengthening of credit institutions and a stronger lendingframework as a result of the Government's continued pursuit of banking sectorreforms will support more sustainable credit growth over the long term,"Fitch analysts said.-VNS/VNA
“Weexpect the SBV to keep its monetary policy on hold for the remainder of 2019.Monetary policy transmission in Vietnam remains weak and this informs our viewfor the SBV to continue to manage financial risks through non-interest ratemeasures such as loan directives and macro-prudential measures,” analysts fromFitch Solutions told Vietnam News.
On theone hand, the analysts said, Vietnam’s five-year government bond yield stands at3.85 percent, below the SBV’s discount rate of 4.25 percent, and this continuesto suggest that monetary policy transmission is still not optimal due to excessliquidity in the banking system.
Inaddition, bank lending rates are high and appear to be on an upwards trend. Forexample, interest rates at Techcombank are between 6.80 percent and 9.83 percenton large VNĐ-denominated corporate loans in June, compared to between 6.40 percentand 9.00 percent in March. Moreover, high deposit interest rates at 6.80 percentfor tenures above 12 months for both Agribank and Vietcombank also suggest thatlending interest rates are likely to be high at these banks.
Speakingabout monetary policy in the second half of this year, SBV Deputy Governor NguyenThi Hong said the SBV would continue to follow a pro-active, flexible andcautious monetary policy as well as working in close conjunction with fiscaland other policies to control inflation, sustain the macro-economy and supporteconomic growth.
Accordingto Fitch analysts, macro-prudential measures will continue to bethe method of choice for the SBV overthe coming quarters to manage financial stability risks inthe economy.
Under theSBV’s regulations, the proportion of short-term capital to be used for mediumand long term lending by banks has to be reduced to 40 percent in 2019 from 45 percentin 2018. This has already seensome smaller and less well-capitalised banks raise interest rates offered onlong-term time deposits since the first quarter of this year with the aim ofattracting the capital needed to meet this requirement.
In June,the SBV released a draft circular seeking public comments on furthermacro-prudential measures the central bank intends to introduce to managefinancial risks in the economy, with a specific focus on managing the risk oflending to the real estate segment.
Thecircular encompassed a number of changes, including a further reduction to theratio of short-term capital for medium and long term loans to 30 percent byJuly 1, 2020, with the aim of helping the central bank manage liquidity risksin the banking sector. To be sure, this regulatory change would apply to loansin all sectors and not just the real estate sector.
Otherregulatory changes proposed include raising the risk weight ratio for homepurchase loans worth 3 billion VND and above and loans worth between 1.5billion VND and 3 billion VND at 150 percent and 100 percent, respectively, from50 percent at present. Housing mortgage loans worth less than 1.5billion VND and loans for the purchase of social and government supportedhousing projects will remain at the risk weight ratio of 50percent.
According to the SBV,the aim of these changes is to channel real estate credit towardborrowers with genuine housing needs instead of speculators andto balance the development of low-cost commercial and socialhousing as demand in the low-cost segment still outstrips supply.
Fitchanalysts also expect the SBV to focus efforts on banking sector reforms,explaining this was because credit growth was one of the SBV’s main monetarypolicy tools.
The SBVtailors credit growth quotas for each bank, with healthier banks (assessedbased on the bank’s operations and ability to grow credit sustainably) beingassigned a higher quota, vice versa, with the aim of regulating overall creditgrowth within its annual target.
The SBVhas so far also instructed credit institutions to implementa host of administrative reforms over the pastcouple of years, which include the simplification of borrowing procedures,the provision of adequate guidancefor borrowers, and the improvement of restructuring plansassociated with the handling of bad debt.
"Webelieve that a strengthening of credit institutions and a stronger lendingframework as a result of the Government's continued pursuit of banking sectorreforms will support more sustainable credit growth over the long term,"Fitch analysts said.-VNS/VNA
VNA
