Central bank biased toward growth

03.06.2016

The central bank has issued new circulars biased toward gross domestic product (GDP) growth rather than the banking system, according to financial institutions and banks.

A foreign investment fund told local media that the State Bank of Vietnam’s (SBV) circulars 06 and 07 would ultimately support growth as Vietnam’s first-quarter GDP growth was lower than in the same period last year and credit growth stayed low.Circular 06/2016/TT-NHNN, which amended and supplemented a number of provisions in Circular 36/2014/TT-NHNN, reduces adequacy ratios at banks to ease pressure on banks and support interest rate cuts this year to boost loan growth.  

Speaking to the Daily, a senior source from a bank said the central bank is trying to buoy GDP growth in the coming time. The economy did grow in quarter one but not as strongly as expected, making the Government’s GDP growth target of 6.7% for this year hard to obtain.The two pro-growth circulars give enterprises access to foreign currency loans, channel more loans into the market and allow banks to have time to prepare to meet the requirements for adequacy ratios set by the SBV. A couple of macroeconomic targets could improve significantly in the second quarter, the source said.

He noted joint stock banks have an edge over banks that are majority-owned by the State. Besides, the capital adequacy ratio (CAR) at banks is expected to edge down at the end of this year.

According to a Bank for Investment and Development of Vietnam (BIDV) report released on May 31, GDP growth is projected at 6% to 6.2% in quarter two and at 5.7-5.8% in the first half of this year. Vietnam’s economy is projected to expand 6.5-6.7% in all of 2016.The report was based on factors like the Government’s resolve to support businesses, positive export growth, higher foreign direct investment approvals, a surge in startups in quarter one, an oil price recovery and good growth prospects backed by the free trade agreements the country has joined.     Credit is forecast to grow 10-11% in the third quarter. Deposit rates may be revised up to attain a desirable credit growth rate and match Government bond coupons and inflation, the report said.

In the first half, export revenue is projected at US$82.5 billion and the import bill at US$80.5 billion, hence a trade surplus of US$2 billion. These positive figures result from good economic prospects of some major economies like the U.S. and the European Union and Vietnam’s deeper international integration.   BIDV said the equity market would perform well. The foreign ownership limit (FOL) hike would lead foreign investors to remain net buyers in the coming time.

According to the report, if credit growth stays high but lower than the rise of capital mobilization at banks, the currency market would be stable. As of April 24, credit had grown 3.57% against the end of 2015 and amounted to VND4,830 trillion.Meanwhile, capital mobilization had grown 4.5%. By end-March, banks had mobilized over VND5,390 trillion from depositors.    

Meanwhile, Circular 07/2016/TT-NHNN, which was issued by the central bank to amend Circular 24/2015/NHNN and takes effect from on June 1, permits exporters to take out short-term loans in foreign currency at low interest rates and convert them into Vietnam dong funds to finance their production of goods for export.

Another investment fund in HCMC said Circular 06 eases concerns among banks and real restate firms. On Monday, realty firms like VIC, DXG and KDH and banks such as VCB, BID, MBB and CTG edged up on the HCMC exchange, backing the market rally.

The BIDV report noted the SBV and the Government should order credit institutions to streamline procedures, ensure safety of loans and create favorable conditions for businesses to borrow. The Government must act to prevent dollar hoarding and encourage dollar buy and sell transactions in a way that does not affect production costs.

Phase two of a banking sector restructuring plan in 2016-2020, especially ailing banks, will be executed to improve financial capacity of banks, those majority-owned by the State, settle bad debt and increase transparency in the banking system.

Source: Vietnam.net

Photo: CBR Investment AG