Banking sector stable, but challenges abound

The liquidity of credit institutions is solvent and there is a surplus

Liquidity guaranteed

GDP growth for 2022 was forecast to reach about eight percent with inflation under control, and the average consumer price index (CPI) to increase 3.3 percent (the target was about four percent). State Bank of Vietnam (SBV) Governor Nguyen Thi Hong affirmed that the banking sector has demonstrated monetary policy flexibly in response to complex global market fluctuations and in line with domestic realities. This has contributed to controlling inflation and stabilizing the macro-economy, ensuring the liquidity of the banking system and generating stable market sentiment in foreign exchange markets.

According to the Governor, the liquidity of credit institutions is still in good solvency and there is a surplus. In 2022, the market was mainly affected by psychological factors and complicated movements of the world market. Faced with that situation, the SBV quickly and promptly performed its regulatory role by deploying tools and solutions to support system liquidity. Recently, Fitch Ratings also continued to rate Vietnam’s credit rating at BB with a positive outlook.

Dr. Tran Hoang Ngan, member of the National Financial and Monetary Policy Advisory Council, says that monetary policy management aims at three goals. Firstly, macroeconomic stability, and the inflation is currently well controlled. Secondly, promoting economic development, creating jobs - the economy is growing well. Thirdly, it is the stabilization of fiscal security, and the national banking system. “In recent times, monetary policy management has been going in the right direction. I appreciate the monetary administration of the SBV,” Dr. Tran Hoang Ngan emphasized.

Numerous challenges in 2023

The banking sector will face challenges from the international environment as well as the domestic economy. The main emerging risks are identified as a less favorable international environment, declining growth that reduced the demand for exports, investment, consumption and international tourism. Meanwhile, the disbursement of public investment for national target and recovery programs is still slow.

Channeling credit to production and business

Dr. Can Van Luc, a member of the National Monetary and Financial Policy Advisory Council and Chief Economist at the Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), said that monetary policy space has been narrowed. In 2022, the SBV had to raise interest rates twice (one percent each time) to stabilize the exchange rate, while other tools had almost used up space. The current foreign exchange reserves are at the recommended level of the International Monetary Fund (IMF) (three months of imports). But the bad debt of the economy in 2023 is forecast to increase with the tightening monetary policy of the SBV. An increase in interest rates will raise the debt repayment obligations of borrowers (individuals and businesses), while slow economic recovery is expected to increase the potential of bad debts. Therefore, Dr. Can Van Luc urged state management agencies to closely monitor the international economic and financial situation, analyze and forecast developments in the international financial-monetary market in order to provide a suitable proactive response scenario and maintain close and effective coordination between monetary, fiscal and other macro policies.

In 2023, the SBV will continue to synchronously administer monetary policy tools, stabilize the currency and foreign exchange markets to contribute to controlling inflation, stabilizing the macro-economy and supporting sustainable growth. To meet capital demand, the SBV is instructing credit institutions to channel credit to production and business, strictly control credit to potentially risky sectors.