Global uncertainties, such as the impacts of the Fed’s rate hikes and the spiralling US-China trade war, have triggered questions about whether the lending interest rate in Vietnamese đồng will increase and in what direction foreign exchange rates will move. The Vietnam News Agency talks with economic expert Vũ Đình Ánh about his forecasts for the developments of the financial markets in the remaining months of this year.
Could you comment on the recent developments of the money market?
The money market from the beginning of this year has seen stable developments. Major indicators such as money supply, deposit growth, credit growth, interest rates and foreign exchange rates have all seen stability in the period.
The foreign exchange rate is one macroeconomic indicator which has drawn significant market attention recently, given the Fed’s rate hikes and the spiralling US-China trade war.
The foreign exchange rate is largely relevant to the openness of the Vietnamese economy. Thus, it is important to regulate the foreign exchange rate in order to not only promote exports but also limit imports.
However, the foreign exchange rate is facing heavy pressure for huge volatility. Given the developments of the global economy and financial market, a number of countries, including developed and developing countries, are facing pressure from the volatility of foreign exchange rates. Most recently, the US-China trade war, which threatens to spiral into an expanded currency war, has been weighing on foreign exchange rates.
In the context that Việt Nam keeps US dollar deposit rates at zero per cent while the Fed continuously raises rates, the foreign exchange rates also face pressure for adjustments.
What do you think about the policies of the State Bank of Việt Nam?
Việt Nam has consistently followed the policy of managing the foreign exchange rate actively and flexibly. As of the end of September, the US dollar index advanced by 2.6 per cent over the end of 2017. This could be regarded as a success. In comparison with several countries in the region, their currencies lost against the US dollar by up to 10 per cent.
The central bank also has appropriate measures to control the forex market, especially the unofficial market. In a short period, the market saw sudden volatility but the central bank intervened to pull the market back to stability.
Some times, the State Bank of Việt Nam boldly sold foreign currencies to stabilise the market together with measures to control banks and credit institutions’ operations involved in foreign exchanges.
Still, Việt Nam posted record foreign currency reserves worth US$60 billion, demonstrating success in forex policy as well as the ability to intervene in the market when necessary.
How do you evaluate the efficiency of bad debt resolution?
Overall, the handling of non-performing loans at commercial banks and credit institutions has improved significantly. The ratio of bad debts in the banking system was reduced to below 3 per cent of total outstanding loans – a level appropriate to international practices and standards.
With the issuance of Resolution 42/2017, we have more tools for handling bad debts efficiently and thoroughly to ensure the roadmap following the project of restructuring credit institutions with bad debt resolution in the 2016-20 period.
Commercial banks in recent years have made significant efforts in setting up risk provision and using it in dealing with bad debts, and, at the same time, solving a huge amount of bad debts through the handling of mortgaged assets, mainly real estate assets.
Not only focusing on handling existing bad debts, commercial banks also strive to apply international standards in risk management to prevent the emergence of new bad debts.
The Governor of the State Bank of Việt Nam has signaled that control over credit growth will be tightened until the end of this year. What do you think?
As of the end of September, credit growth was reported at just 9.52 per cent, the total money supply increased by 9.74 per cent and deposit growth at 9.15 per cent. All of these figures were lower than 2017.
In my opinion, it is necessary to tighten control over credit growth to meet the target of not exceeding 17 per cent. It is more important to ensure credit quality rather than its growth. The top priority is that credit growth must not affect the control and resolution of bad debts.
What are your forecasts for the domestic money market in the remaining months of this year, given the situation of unpredictable global geo-political and economic developments?
I think the world market might witness more tensions in trade, commodities markets and financial markets, which will have impacts on the Vietnamese economy in general and the developments of the financial market in particular until the end of this year.
In the remaining months of this year, focus should be placed on the developments of the US-China trade war because the two countries are both very important trade partners and investors of Việt Nam. The policies of interest rates and foreign exchange rates will have to consider the impacts of this trade war.
There is a trend that capital flow is shifting from developing countries to developed countries, mainly due to US protectionism. For Việt Nam, with the improved business climate, the capital inflow to Việt Nam will not be affected much, but still, Việt Nam needs to have back-up plans.