2018 predictions: Credit growth, monetary stability, interest drop

15:03 | 30/01/2018 Finance - Banking

(VEN) - Credit growth of 19 percent, foreign exchange reserves at an all-time high of more than US$50 billion and commercial bank profits of over 40 percent were the Vietnamese financial market’s bright spots in 2017. Experts’ predictions signal that growth will continue in 2018.

credit growth monetary stability interest drop

Diversified capital supplies

Nguyen Thi Hong, deputy governor of the State Bank of Vietnam (SBV), said at a conference in Hanoi on December 27 to review the government’s price management and inflation control in 2017 and orientations for 2018, that credit growth expanded by around 19 percent with a focus on priority areas. The SBV also raised its foreign exchange reserves to a record US$51.5 billion.

Liquidity of credit institutions remained stable in 2017, while capital mobilization grew an estimated 16.9 percent. In addition, interbank lending interest rates slipped to a record low.

The 2017 Financial Market Review published by the National Financial Supervisory Commission (NFSC) at the end of December 2017 also provided a positive assessment of the financial system over the past year. It rated the financial system performance as “quite well” in supplying capital for the economy thanks to macroeconomic stability, abundant liquidity in the banking sector and positive stock market development.

By the end of 2017, the financial system supplied capital for the economy estimated at 198 percent of the gross domestic product (GDP), up 28.6 percent compared to the end of 2016. Capital from credit institutions expanded by 18.1 percent and the capital market increased 66.4 percent. In particular, the structural imbalance of the financial market improved, while the stock market grew the most in the region and was among the top five fastest growing markets in the world. NFSC Acting Chairman Truong Van Phuoc said the Vietnamese financial market saw a positive change in 2017 in the direction of reducing dependence on credit institutions, and strengthening the role of the capital market in raising medium- and long-term capital for the economy.

The proportion of capital for the economy from the capital market increased to 35.4 percent in 2017. During the 2012-2017 period, this figure increased by an average of 33.4 percent a year. Likely interest rate drop

credit growth monetary stability interest drop

According to the NFSC forecast, by the end of 2018 the financial system’s capital supply for the economy will grow by 19.3 percent compared to the end of 2017, including an increase of 22.5 percent from the capital market and 17.5 percent from credit institutions.

The National Council for Financial and Monetary Policy Consultation convened its fourth-quarter meeting in Hanoi on December 26. At the meeting, the council made a number of proposals to the government and the prime minister related to the implementation of macroeconomic, monetary and fiscal policies. The council proposed that the SBV manages interest rates in line with the macro balance, inflation and monetary market, and addresses the relationship between deposit and lending rates in addition to striving to reduce lending rates. Credit should be provided in accordance with the absorption capacity of the economy, while the structure and quality of credit should be strictly managed.

According to experts, interest rates are likely to drop in 2018 due to positive developments of the monetary market. The NFSC also said that the restructuring process had achieved initial significant results. The banking system had handled about VND70 trillion in bad debts, an increase of 40 percent compared to 2016.

Pham Thanh Ha, general director of the Monetary Policy Department under the SBV, said the National Assembly has adopted the socioeconomic development plan for 2018, which targets growth at between 6.5-6.7 percent. He also said interest rates would remain stable and will likely decline at some point. Credit will be provided at a reasonable rate, in line with the macroeconomic indicators and the economy’s absorption capacity. In particular, authorities will promote the handling of bad debts in 2018 to support an interest rate reduction.

Deputy Prime Minister Vuong Dinh Hue has asked the SBV to apply flexible monetary and interest rates, adopt credit policies matching market developments, and maintain core inflation at an increase of 1.6-1.8 percent, while ensuring credit quality to prevent monetary fluctuations.

Thuy Linh