Transactions being carried out at a VPBank branch. (Photo: VNA) Hanoi (VNS/VNA) - The State Bank ofVietnam should consider developing a roadmap to remove regulations on creditgrowth limits and interest rate caps as it isn’t suitable due to the country’sachievements in stabilising the nation’s economy, according to experts.
The General Statistics Office (GSO)reported that the country’s GDP growth reached 7.38 percent in the firstquarter of 2018, the best first-quarter performance in the last ten years,backed by growth in manufacturing and agriculture, as well as momentum fromhigh GDP growth rates of 7.46 percent and 7.65 percent in third and fourthquarters of 2017.
Meanwhile, January-March average annualinflation was also controlled at 2.82 percent, GSO reported.
Based upon this positive growth, NguyenXuan Thanh, Director of the Fulbright Economics Teaching Programme, suggestedthat it is time to remove the regulations and replace them by indirect onesbased on market principles, bizlive.vn reported.
Thanh proposed that instead of assigning aspecific credit growth limit for each commercial bank, as is currently done, theSBV might set a credit growth target as a guidance for the entire bankingsystem, so that banks with positive capital sources would not be restrained byits credit growth.
This current administrative measure iscalled an ask-give mechanism. Each bank is assigned a specific limit and itmust seek permission from the SBV for expansion of the limit, if needed. Thissystem, however, will not bring competitive advantages for the nation’s banks.
“For banks of which the scale is alreadylarge, it is not necessary to pursue too high growth; but for small banks withgood potential, their credit growth ability is currently being restricted. Suchadministrative measures do not create healthy competition and motivation forbanks,” said Thanh, adding that the SBV might soon announce the policyadjustment roadmap.
As for the management of interest rates,instead of setting a cap for short-term deposits, as currently done, thecentral bank could regulate by using open-market-operation (OMO), he suggested.
At present, Vietnam still applies aninterest rate cap of 5.5 percent for short-term deposits of 1-6 months. Therates for longer terms are floating. The cap regulation has been imposed since2010 when commercial banks, especially ailing ones with poor liquidity, tookpart in a race to increase deposit interest rates to lure depositors, causing asharp rise in lending interest rates.
Meanwhile, the central bank has compliedwith the credit quota allocation policy since 2012 when many banks acceleratedtheir lending by up to 50 percent, causing a sharp rise in non-performingloans. According to the SBV, the allocation is aimed at not only ensuring thatcredit growth serves the economy, but also to control the quality of credit andrestrict new non-performing loans arising in the future. The SBV divides commercialbanks into four groups, depending upon their performance in the previous years,to allocate the credit growth quotas.
A number of years ago, industry insiders andexperts also proposed removing the deposit interest rate cap and credit growthlimit, saying that the cap regulation is an administrative measure and does notfollow international rules, so it should be removed at a suitable time when themacro economy is stable, inflation remains low and liquidity in the bankingsystem is good.-VNA
VNA
