Promoting the access to credit

15:09 | 13/03/2014 Economy

(VEN) - Information from the State Bank of Vietnam (SBV) has shown that the monetary and banking markets underwent positive changes in the first two months of 2014. However, the provision of credit declined.

By February 20, credit for the entire economy decreased by about 1.66 percent compared with late 2013

From the beginning of 2014 to February 26, the foreign exchange rate offered by commercial banks remained stable, ranging from VND21,080 to VND21,120 per US dollar. In the first two months, SBV bought an additional US$4 billion to bolster state foreign currency reserves to prepare for any possible market intervention.

To improve the liquidity of credit institutions so that they can meet the demand of the economy, especially on the occasion of the Lunar New Year (Tet), along with buying foreign currency, SBV also bought valuable papers through open market operations to pump about VND150 trillion into the economy in January. Thanks to these activities, the liquidity of credit institutions was good during and after Tet. By February 20, 2014, total means of payment of the entire economy grew about 1.94 percent compared with late 2013. Credit institutions did not use their redundant money to trade in foreign currencies, so exchange rate pressures were not high. The inter-bank interest rate increased prior to Tet but has decreased and been maintained at a low level.

In the first two months of 2014, SBV maintained interest rate ceilings unchanged. These included the maximum interest rate applied to short-term loans in VND provided by credit institutions for businesses operating in priority areas, and the maximum interest rate applied to deposits in VND and USD of organizations and inpiduals at credit institutions. At the same time, SBV continued to request credit institutions to reduce lending interest rates, including the rates applied to old loans, to below 13 percent per year. The interest rate applied by state commercial banks to loans that are provided to help the borrowers buy houses has been reduced from six percent per year in 2013 to five percent in 2014. Therefore, the average levels of interest rates applied to deposits and loans continued to be stable during the time prior to Tet. After Tet, the amount of money deposited at commercial banks increased and the interest rate applied to short-term deposits has been reduced by 0.2-0.5 percent per year. Meanwhile, the interest rate applied to loans has almost remained unchanged compared with the time prior to Tet.

SBV predicted that in 2014 the lending interest rate would possibly decrease by an additional 1-2 percent per year because the consumer price index (CPI) had been well controlled while monetary and fiscal policies had been effectively implemented - this would help stabilize the exchange rate and maintain the interest rates applied to deposits and loans at reasonable levels. The problem is that while the amount of deposits received by credit institutions increased by 0.83 percent, the provision of loans in the first two months decreased. By February 20, credit for the entire economy decreased by about 1.66 percent compared with late 2013 (credit in VND down 1.94 percent, credit in foreign currency up 0.11 percent).

SBV said that in recent years, credit usually decreased in early months (in the first two months of 2012 and the same period of 2013, credit decreased by 1.88 percent and 0.23 percent respectively).

A growth target of 12-14 percent has been set for credit in 2014. To achieve this target, appropriate measures must be taken to promote the provision of credit in the rest of the year. SBV Governor Nguyen Van Binh said that SBV would design new programs for supporting agriculture, farmers and rural development, pilot the provision of credit for the purpose of applying new technologies in agriculture and rural development, and provide credit for new agricultural production models.

In addition, SBV will provide guidance for the Vietnam Bank for Social Policies to further reduce lending interest rates in order to increase loans for poor households. At the same time, the cooperation between banks and construction material businesses in lending activities will be piloted, firstly in Ho Chi Minh City.       

Lan Ngoc

Theo ven.vn