Econ
Removal of administrative measures in banking industry suggested
The State Bank of Vietnam should consider issuing itineraries to remove administrative measures used in regulating the monetary and credit policies amid the country’s achievements in macro economic stability, according to experts.
The General Statistics Office (GSO) reported that the country’s GDP growth reached 7.38 percent in the first quarter of 2018, the best first-quarter performance in the last ten years, backed by growth in manufacturing and agriculture as well as momentum from high GDP growth rates of 7.46 percent and 7.65 percent in Q3 and Q4 2017. Meanwhile, January-March average annual inflation was 2.82 per cent.
Under the positive context, Nguyen Xuan Thanh, Director of the Fulbright Economics Teaching Program, suggested that it is time to remove the measures and replace it by indirect regulations based on market principles.
For example, Thanh proposed, instead of granting a credit growth quota for each commercial bank, SBV can set a credit growth target as a guidance for the entire banking system so that banks with good capital sources will not be restricted its credit growth.
The measure will help small-sized banks with good growth potentials to expand their lending, Thanh said, adding that it is not necessary for large-sized banks to gain too high credit growth.
As for the management of interest rate, instead of setting a cap for short-term deposits as currently, the central bank can regulate by using open-market-operation (OMO), Thanh suggested.
Vietnam currently still applies an interest rate cap of 5.5 percent for short-term deposits of 1-6 months. The rates for longer terms are floating. The cap regulation has been imposed since 2010 when commercial banks, especially ailing ones with poor liquidity, took part in a race to increase deposit interest rates to lure depositors, causing a sharp rise in lending interest rates.
Meanwhile, the central bank has decided to apply the credit quota allocation policy since 2012 when many banks accelerated their lending by up to 50 percent, causing a sharp rise in non-performing loans.
According to SBV, the allocation is aimed at not only ensuring that credit growth serves the economy, but also to control credit quality and restrict new NPLs arising in the future. SBV divides commercial banks into four groups, depending upon their performance in the previous years to allocate the credit growth quota.
Earlier, industry insiders and experts have proposed removing the deposit interest rate cap and credit growth quota for several times, saying that the cap regulation is an administrative measure and it does not follow international rules so it should be removed at a suitable time.
According to them, it was time to consider removing the cap as the country currently had the necessary conditions for its removal: macro economy keeps stable, inflation remains low and liquidity in the banking system is good.
Besides, the central bank could use other measures such as the refinancing rate, discount rate, overnight rate and reserve requirements to control the market.
They said that the central banks around the world often use the three key tools of OMO, refinancing rates and reserve requirements to regulate monetary policies. Therefore, eventually, SBV also has to use the tools to manage the banking system to meet international rules, especially as Vietnam integrates more deeply into the global economy.
Though agreeing about the removal of the cap regulation, some experts have said that caution is necessary and a timeline for the removal should be taken to avoid disorder, ensuring the stability and health of the banking and finance system.
Under the positive context, Nguyen Xuan Thanh, Director of the Fulbright Economics Teaching Program, suggested that it is time to remove the measures and replace it by indirect regulations based on market principles.
Interest rate cap of 5.5 percent is regulated for short-term deposits
|
The measure will help small-sized banks with good growth potentials to expand their lending, Thanh said, adding that it is not necessary for large-sized banks to gain too high credit growth.
As for the management of interest rate, instead of setting a cap for short-term deposits as currently, the central bank can regulate by using open-market-operation (OMO), Thanh suggested.
Vietnam currently still applies an interest rate cap of 5.5 percent for short-term deposits of 1-6 months. The rates for longer terms are floating. The cap regulation has been imposed since 2010 when commercial banks, especially ailing ones with poor liquidity, took part in a race to increase deposit interest rates to lure depositors, causing a sharp rise in lending interest rates.
Meanwhile, the central bank has decided to apply the credit quota allocation policy since 2012 when many banks accelerated their lending by up to 50 percent, causing a sharp rise in non-performing loans.
According to SBV, the allocation is aimed at not only ensuring that credit growth serves the economy, but also to control credit quality and restrict new NPLs arising in the future. SBV divides commercial banks into four groups, depending upon their performance in the previous years to allocate the credit growth quota.
Earlier, industry insiders and experts have proposed removing the deposit interest rate cap and credit growth quota for several times, saying that the cap regulation is an administrative measure and it does not follow international rules so it should be removed at a suitable time.
According to them, it was time to consider removing the cap as the country currently had the necessary conditions for its removal: macro economy keeps stable, inflation remains low and liquidity in the banking system is good.
Besides, the central bank could use other measures such as the refinancing rate, discount rate, overnight rate and reserve requirements to control the market.
They said that the central banks around the world often use the three key tools of OMO, refinancing rates and reserve requirements to regulate monetary policies. Therefore, eventually, SBV also has to use the tools to manage the banking system to meet international rules, especially as Vietnam integrates more deeply into the global economy.
Though agreeing about the removal of the cap regulation, some experts have said that caution is necessary and a timeline for the removal should be taken to avoid disorder, ensuring the stability and health of the banking and finance system.
