Financial market fosters economic growth

10:47 | 31/05/2019 Finance - Banking

(VEN) - The Vietnamese economy has grown at a stable rate for many years, while macroeconomic stability has been ensured and inflation effectively controlled. Vietnam has proven its advantages in attracting foreign investment and grasped opportunities presented by international integration. Economists believe that apart from these factors, a healthy and growing financial and monetary market is also an important driving force of economic growth.

Financial market prospects

Economists forecast that in 2019, interest rates can be kept stable because global oil prices are not expected to change significantly, while the US dollar is expected to depreciate, reducing pressure on the exchange rate. Meanwhile, efforts to maintain the growth of credit supply for the economy at 12-14 percent will likely support economic growth. The application of information technology in the financial sector will help minimize risks and increase transparency for not only banks and businesses but also the state.

According to Dr. Ha Huy Tuan, Vice Chairman of the National Financial Supervisory Commission, the government implements monetary policies by tightly controlling bank capital flows into risky areas such as real estate and securities, while at the same time striving to stabilize and reduce interest rates in prioritized sectors. These efforts will help maintain the stability and health of the financial market. Meanwhile, the state continues strengthening and improving the administration systems of commercial banks, focusing on the application of international standards, including Basel II - the second version of the Basel Accords with recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.

Vietnam has become a full member of most major international financial institutions, such as the World Bank (WB) and the International Monetary Fund (IMF). It has signed more than 60 investment encouragement and protection agreements, more than 60 treaties for the avoidance of double taxation and the prevention of fiscal evasion with respect to income taxes. Vietnam’s membership in these institutions provides it with access to not only diverse capital resources but also advanced and effective management experiences.

Improving risk management

The financial market creates a driving force for the economy to grow but also requires it to overcome certain difficulties. Despite its rather high level of openness, the Vietnamese economy remains small-sized and therefore vulnerable to changes in the world market and other economies. Despite its free trade agreements (FTAs), Vietnam still needs to create a lever for the financial and monetary market as well as the banking sector in order to facilitate cooperation and trade between domestic and foreign businesses, contributing to sustainable growth of the economy. Seeking access to international standards and practices with specific roadmaps and commitments by relevant units is a challenge.

Pham Thanh Ha, Director of the State Bank of Vietnam (SBV)’s Monetary Policy Department, said credit has grown more than one percent since the beginning of 2019 and continues growing on a stable basis while market liquidity remains good. The monetary market has also been stable for the first 2.5 months of the year. The SBV keeps buying a large volume of foreign currency although at a slower pace compared with last year. The interest rate has been stable. Some banks that raised the deposit interest rate before Tet plan to reduce it due to a decline in liquidity. Liquidity and interest rates are forecast to remain stable leading the SBV to predict that this year’s credit growth would be the same as in 2018, 14 percent.

In December 2018, commercial banks began selling foreign currencies to the SBV. However, the director of the SBV’s Monetary Policy Department said foreign currency credit would be cut further in accordance with government policy.

The central bank has issued a circular stipulating that foreign currency loans are to be provided only for export companies and under short-term agreements. Therefore, Pham Thanh Ha said total credit for the economy in 2019 would be equivalent to that in 2018, but foreign currency credit would decrease.

According to Nguyen Dinh Tung, General Director of the Orient Commercial Joint Stock Bank (OCB), along with diversifying credit products, banks are upgrading risk management systems to be allowed to provide more credit, and promoting the application of digital banking solutions. Banks also issue their corporate bonds directly for retail customers and sell their shares to investors to accrue more capital, he said.

Hoang Duan