09:19 | 14/03/2016 Finance - Banking
(VEN) - According to the National Financial Supervisory Commission’s economic report in January, inflation remained low and stable, while exchange rates declined thanks to a slight reduction in demand for foreign currency. Despite facing difficulties, the securities market showed positive signs.
The domestic financial market remained stable in January
Declining exchange rates
The domestic financial system remained stable in January, especially in terms of the foreign exchange market and banking sector. The State Bank of Vietnam has applied a new mechanism on foreign exchange management to more rapidly react to market fluctuations. This adjustment has led to a decline in exchange rates thanks to incoming flows of foreign currency such as remittances and investment disbursement, while demand for foreign currency has witnessed a reduction due to seasonal factors. However pressure on exchange rates this year remains huge because of possibilities of a stronger US dollar and the devaluation of the Chinese yuan.
The banking sector saw good credit growth last year. Short-term credit witnessed growth of seven percent, while medium and long-term credit increased by 31.4 percent compared to a year ago. In the context that the economy was restructuring, the growth in credit met the needs of businesses keen to invest and improve their technology.
The domestic securities market faced many difficulties in the first month of the year due to a continuous reduction in international securities markets in addition to plummeting crude oil prices that fell to under US$30 a barrel. In addition, the net sale of US$39 million in listed shares by foreign investors by January 25 had a negative affect on the markets.
Ensuring domestic financial stability
The state bank has implemented flexible monetary policy and exchange rates since the beginning of the year in order to maintain credit growth. In addition, the bank is completing the draft Circular 36 on ensuring safety for credit institutions.
The draft will refer to capital used by credit institutions that has a direct impact on investment in government bonds, securities market and real estate. Commercial banks will use a maximum of 40 percent of short-term capital for medium and long-term loans instead of 60 percent. In addition, limits for branches of foreign banks, non-bank financial institutions and cooperative banks will be reduced to 40 percent, 80 percent and 40 percent, respectively.
This adjustment will contribute to limiting medium and long-term credit for the real estate sector and reducing risks in liquidity.
The net sale of listed shares meant no capital withdrawal. Foreign investors may buy shares after the international financial markets become more stable and the Vietnamese economy maintains its growth.