Governor Nguyen Van Binh talks about the economic targets set by the NA for next year.
On November 10 the National Assembly (NA) passed a resolution on economic development plans for 2015, setting a number of targets in monetary policy and the operational management of credit institutions. The objectives and requirements are higher than what is expected to be accomplished this year. If achieved, 2015 will be a year of positive change, especially in the promotion of economic growth, inflation, and bad debt control. In the talk with VnEconomy.vn, Governor of the State Bank of Vietnam (SBV) Nguyen Van Binh said he believed the objectives are achievable.
This is the first time the NA has set a specific target for the reduction of bad debts, of less than 3 per cent in 2015. But it says nothing about the capacity to reach such a goal. Do you think there is such a capacity?
Recently, as the economy has faced difficulties, the banking sector has been positively and proactively introducing solutions regarding non-performing loans (NPLs) and has achieved a number of good results. On behalf of the baking sector, I reported these results to the Standing Committee of the NA and answered questions from delegates.
The SBV believes that with the efforts of the banking sector to resolve bad debts and the efforts of other sectors, together with the improving macro-economic situation, recovery in the real estate market, and better business and production activities, we can accomplish the goal of reducing bad debts to less than 3 per cent by the end of 2015.
But the requirements of Circular No. 9 for loan classification and provisioning will be more stringent next year, so it is expected that the picture of bad debts will be more realistic and more transparent, and the figures will actually be higher. How will this put pressure on the reduction target, especially as budgetary resources are not being used?
Under Circular No. 09, from October this year some stricter rules have been applied. NPLs in the banking system have increased, but this is no surprise as the SBV estimated it would happen in the process of developing and promulgating regulations on new loan classifications and risk provisioning.
These new regulations are tighter, to better evaluate the accuracy and transparency of bad debts and the credit quality in the banking system.
We also estimated that bad debts could rise in 2015 when stricter regulations on loan classification are applied. So, despite having handled a large number of bad loans in recent years the SBV has requested credit institutions and involving sectors continue to promote the implementation of measures to handle and curb bad debts in the near future.
The new NA resolution also requires linking bad debt resolution with the restructuring of the banking system. What are the objectives of this linking?
In the process of restructuring credit institutions, the SBV has identified bad debts as one of the most important factors in trying to restructure the banking sector.
Recently, the restructuring of credit institutions, especially those that are performing poorly, has been linked to their bad debts. Therefore, in the future, the SBV will continue to conduct restructuring that is associated with handling bad debts. The restructuring of and bad debt resolution at credit institutions were approved in Prime Ministerial Decision No. 254/QD-TTg and bad debt handling projects were approved in Prime Ministerial Decision No. 843/QD-TTg on May 31, 2013.
Secondly, continue to implement monitoring activities. In particular, credit and audit quality inspections must be in accordance with provisions and requirements set out to evaluate the situation of bad debts, from which appropriate solutions can be identified.
Thirdly, strengthening the monitoring of currency markets and banking activities, strictly controlling the activities of credit institutions and the branches of foreign banks, and timely detecting and dealing with errors to ensure a safe banking system. As in recent years, the SBV will strengthen its monitoring, analyzing and regularly assessing compliance with interest rates and exchange rates and safety limits at credit institutions, focusing on the level of capital adequacy, charter capital, bank ownership ratios, liquidity risks, and credit risks. From these we can handle issues regarding credit institutions in a timely manner.
Fourthly, strengthen the management and implementation of licensing activities, expand commercial banking networks in accordance with the policy of the government and the regulations of the SBV, together with the implementation of the restructuring of credit institutions and the review of activities at credit institutions.
The SBV will also continue to build and issue legal documents guiding the two laws on banking, and legal documents supporting the renewal of the monitoring, supervising, and restructuring of credit institutions and the handling of bad debts.
In addition to the above requirements, the resolution from the NA sets an inflation target of 5 per cent. Is this considered ambitious and how will monetary policy be implemented to reach it?
With the government’s efforts to control inflation, stabilize the macro-economy and support growth at a reasonable level, including monetary policy initiatives from and flexibility by the SBV, inflation will continue to stabilize at a low level and is expected to be less than 5 per cent this year.
Economic growth has also improved compared to previous years, the balance of payments surplus continues to be at a high level, and money market, foreign exchange, and banking activities are stable.
The results have been recognized by international organizations. Moody, Standard & Poor and Fitch Ratings have all recently upgraded their ratings for Vietnam by one rank, due to the country’s success in controlling inflation and stabilizing the banking system and the macro-economy.
The inflation target of 5 per cent by 2015 is relatively low compared to recent years. Macro-economic policies must be implemented cautiously and flexibly, and there should be close coordination in controlling inflation while continuing to resolve difficulties facing businesses and contributing to economic growth.
For monetary policy, the key tasks are determining interest rates in accordance with the situation regarding the macro economy and the currency, to regulate market interest rates at reasonable levels and contribute to stabilizing currency markets, operating exchange rates flexibly to ensure stability in the Vietnam dong and increase foreign exchange reserves, and continuing to manage foreign exchange policy towards curbing the dollarization of the economy.
For credit, the SBV will deploy solutions in the credit sector to meet the capital demand in the economy and ensure the safety and quality of credit.
Regarding the economic growth target of 6.2 per cent set in the proposed resolution, how should monetary policy be changed, especially in terms of credit resources?
Working towards the objectives of the NA and the government, the SBV will continue to implement solutions to remove difficulties for businesses, support economic growth while not being subjective about inflation, and ensuring a stable macro-economy and the secure operation of the banking system.
As the production and business activities of enterprises are facing difficulties, the process of restructuring the economy continues. In my opinion, the growth target of 6.2 per cent for 2015 is relatively high. Therefore, there should macroeconomic policies to resolve the difficulties facing business growth as well as economic growth, according to the resolution of the National Assembly and the government.
Do you feel any personal pressure trying to achieve these goal?
Achieving these targets requires a lot of effort and comes with a lot of pressure. However, the NA considers these to be feasible goals.