"Vietnam News" Posted by Samson Monday 10-7-19
Samson: World Bank signs $2.2m project to strengthen Việt Nam’s banking sector
2nd October, 2019
The World Bank (WB) and the State Bank of Việt Nam (SBV) on Tuesday signed a financing agreement for a grant worth US$2.2 million to implement a project aimed at strengthening the soundness and resilience of Việt Nam’s banking sector.
Sponsored by the Swiss Government, the grand is designed to improve SBV’s capacity in removing bottlenecks in the banking system.
Under the agreement, the WB will provide technical assistance to launch reforms set in the Restructuring Plan of the Financial System 2016-20 and the Development Strategy of Việt Nam Banking Sector to 2025. At the ceremony, WB Country Director for Việt Nam Ousmane Dione said a sound banking system is of great significance to the sustainable economic development of a country.
By sharing experience in the development of the system, the WB could help the SBV to successfully launch its structural reforms, he added. The WB will team up with the SBV to strengthen legal framework for the banking system, especially the Law on Credit Institutions and the National Assembly’s Resolution No. 42/2017/QH14 on tackling bad debts.
The project will also look to enhance SBV’s forecast and monitoring skills in line with global standards and practices, as well as develop bond market and raise the capacity of the Việt Nam Asset Management Company.
The grant is part of the $8-million project titled “Strengthening banking sector’s soundness and development” managed by Switzerland’s State Secretariat for Economic Affairs and the WB. LINK
Samson: Vietnam : Firms advised to use derivative instruments to minimise exchange rate risks
3rd October, 2019
Instead of borrowing foreign currency from banks, firms have to buy it from banks from October 1 this year
Experts suggested firms use more derivative instruments, such as futures and forward contracts, to minimise exchange rate risks when they can no longer borrow the US dollar from commercial banks, starting early this month.
According the central bank’s new regulation, banks have been banned from lending in foreign currency to pay for imports since October 1 this year in a bid to limit dollarisation in the local economy. From that date, instead of borrowing foreign currency from banks, firms have to buy it from banks.
The regulation applies to both domestic banks and branches of foreign banks in Viet Nam lending to anyone who is a Vietnamese resident. Previously, importers were allowed to take out loans in foreign currencies to pay for imports if they could prove they can generate enough foreign currency from their production and trading revenues to repay these loans.
Cấn Văn Lực, Chief Economist of the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), said currently, many banks have provided derivative instruments so firms which want to buy foreign currencies in the future can use forward contracts. This tool helps reduce risks for firms because future exchange rates have been determined from the beginning. According to Lực, the policy to stop foreign currency loans is in the anti-dollarisation roadmap and was announced early in the year so credit institutions have had time to prepare for the application of the new policy.
In general, he said, the relatively stable macro economy, low inflation and stable exchange rate have contributed to improving the confidence in the value of the Vietnamese đồng, which is expected to continually help reduce the hoarding of the US dollar.
The new policy thus will not cause difficulties for both banks and firms, but the central bank and commercial banks should still create a foreign currency trading market with better liquidity to further help firms and individuals in meeting their foreign currency demands. The ban on foreign currency lending also helps raise the competitiveness of domestic goods and firms, experts said.
Banking expert Nguyễn Trí Hiếu said the new regulation would level the playing field between enterprises producing for domestic consumption and those importing for export production. Earlier, only the latter was privy to dollar loans that generally have lower interest rates than đồng loans. Therefore, the ban would encourage production with domestic materials, he said. Besides, this will also help restrict the import of luxury goods, one of the main factors causing trade deficit and macro-instability, especially towards the end of the year when demand for import of consumer goods puts pressure on liquidity in the forex market.
The SBV aims to reduce the proportion of foreign currency in total outstanding debt to below 7.5 per cent in 2020, below 5 per cent in 2030, and to stop lending in foreign currency altogether by 2030. The ratio currently stands at 8.73 per cent, which the central bank estimates at around VNĐ176.47 trillion (US$7.59 billion). LINK
Samson: Vietnam : Exchange rate management policy proves effective
2nd October, 2019
The State Bank of Việt Nam (SBV)'s exchange rate management policy has been appropriate and effective, creating benefits for the economy and confidence for the market.
Speaking at a press conference held in Hà Nội on Tuesday to review the performance of the banking industry in the third quarter of 2019, SBV’s Governor Đào Minh Tú said the assessment was made by members of the National Monetary Policies Council in its recent meeting.
While countries worldwide devalued or appreciated their currencies sharply, the SBV had kept the local currency relatively stable, with the management policy based on the overall balance of the economy such as import and export, public debt, balance of payments and current accounts, Tú said.
Reports from the SBV showed currently, the foreign exchange rate in the domestic market is relatively stable, increasing and decreasing slightly in comparison with the large fluctuations of currencies around the world.
Specifically, on the first two days of this week, the USD Index on the international market increased continuously to reach a two-year record high of 99.2 points. However, in the domestic market, the exchange rate at commercial banks only increased and decreased slightly.
According to the nine-month economic report by the General Statistics Office, despite big economic changes in many countries, including the US Federal Reserve (Fed)’s decision to cut interest rates by 0.25 percentage points in mid-September, the USD/VNĐ exchange rate did not fluctuate significantly thanks to the SBV’s flexible exchange rate management policy. Specifically, the dollar depreciated slightly by just 0.11 per cent against the previous month, 0.49 per cent against December 2018 and 0.39 per cent against the same period in 2018.
As a result, the domestic market liquidity has been ensured while foreign currency transactions have been conducted promptly and smoothly. It has also helped the central bank net buy dollars to build up the nation’s foreign reserves.
According to Tú, many people think that the Vietnamese đồng needs to be devalued to support exports as they are slowing. However, Tú said, the slowdown is seen with all countries and it isn’t feasible to use exchange rates as a tool to promote exports as import volume – mainly materials and equipment to produce goods for export – is also very large.
In the future, Tú said the SBV would conduct open market operations and regulate the credit institution's liquidity at a reasonable level to stabilise the monetary market. It would also combine other monetary policy instruments and take flexible market interventions to stabilise the foreign exchange market, which would contribute to stabilising the macro-economy and supporting reasonable economic growth and build up the nation’s foreign reserves when there are favourable conditions, Tú said. LINK