The State Bank of Viet Nam has targeted lower interest rates, a stabler foreign exchange rate and lower inflation this year, as well as stronger controls over the gold market. State Bank of Viet Nam Governor Nguyen Van Binh spoke to Vietnam News Agency about the issues.
|State Bank Governor Nguyen Van Binh.
What were the achievements of the banking sector last year?
Last year was the year that the central bank and Vietnamese credit institutions made great efforts to implement policy objectives and directives of the Government, especially in controlling inflation, stablisising the economy and securing social security. The banking system posted quite low credit growth, the lowest rate in the past 20 years of renewal. But, thanks to such a low credit growth, the banking system contributed significantly to curbing inflation.
Specifically, the pace of inflation started to decline in August, helping restrain the consumer price index for all of 2011 at 18.58 per cent.
The banking sector also contributed to meeting other economic objectives at relatively stable and much better levels than in previous years, especially in reducing the trade deficit and improving the nation's aggregate balance of payments. Last year, the trade deficit stood at over 10 per cent against the expected rate of 18 per cent. This should be considered a very great achievement.
At the same time, foreign currencies reserves also rose and the surplus of the aggregate balance of payment was up to US$2.5 billion. In particular, most banking credit focused on essential productive sectors of the economy such as agriculture and exports. Therefore, the country still saw GDP growth of 6 per cent, significant compared to other countries in the region and worldwide.
You said that the biggest challenge for the State Bank this year is to reduce interest rates. What's your roadmap for achieving this?
Interest rates will be very critical to economic development this year. Not only the Government and the State Bank, but many businesses and citizens have been taken heed of the issue. However, certain preconditions exist for interest rate reduction. In particular, since August, the monthly inflation rate has been restrained at below 1 per cent, creating the basis for the expected interest rate reduction in the next few months.
The Government has set a target of curbing inflation at single digits this year, at 9 to 9.5 per cent. Several international organisations such as the IMF have forecast that if Viet Nam continues to take drastic measures, inflation might be held to 8 to 8.5 per cent. If so, the banking system will be able to reduce deposit interest rates to 10 per cent per year by market forces alone.
However, the goal will only be met if bank liquidity is also improved. The State Bank is now focusing on solving commercial banks' liquidity problems, which are the other precondition for cutting interest rates.
What will the State Bank do to put the gold market under control?
The management of the gold market should protect the rights of people to continue owning gold while helping mobilise this source of wealth in service of the national development, especially in the current difficult times. The gold volume held by the public is very large, 300-500 tonnes.
The State Bank has submitted a new draft decree to the Government to replace Decree No 174 on gold production and trading. Based on these two decrees, the State Bank will submit a plan to the Government to mobilise gold from the public in service of economic development. We believe that with this policy, we will be able to prevent speculation, stabilise the gold market and keep the domestic price in line with world prices.
Under a new regulation, the State will also recognise citizens' rights to gold ownership and trading. Credit institutions have long received gold deposits and made loans in gold, but in recent years, especially during 2010-11, dramatic fluctuations in gold prices have created high risks for credit institutions.
Under the State Bank proposal, the State would take the lead in mobilising gold from citizens via credit institutions. In other words, banks would as agents of the State. With such a model, the State would not interfere directly in the market but be involved via intermediaries.
Through various tools, such as gold trading on the world market, the State will insure against risks related to global price volatility, thus guaranteeing the assets of citizens. The mobilised gold can also be used to exchange foreign currencies.
Achieving exchange rate stability was considered a major success of the State Bank last year. What will you do to continue maintaining stability this year?
Results from last year showed that if the monetary and other economic policies were synergistically and decisively combined, we could stabilise the exchange rate. The Government has issued Resolution No 01/NQ-CP on key measures to implement the socio-economic development plan and State Budget in 2012. Resolution No 1 includes many features in common with Resolution No 11 issued in 2011. We believe that we will be able to obtain the same achievements in 2012.
Without any unexpected external shocks and with the decisive implementation of Resolution No 1, we can maintain a stable foreign exchange market with currency devaluation of less than 2 or 3 per cent.
What is the plan for restructuring the banking sector?
Bank restructuring should be considered part of the process of self-perfection needed by any entity. The Vietnamese banking sector has seen numerous achievements in past years. To better meet the demands of the socio-economic development in the future, the banking sector should restructure in order to perfect itself. It will be a long process.
But in 2012, our goal is very simple. First, we will ensure the liquidity of credit institutions. Second, we will deal with poorly-performing and financially unhealthy credit institutions in a clear-cut manner in order to ensure stability for the entire banking sector. — VNS