Prompt adjustments ensure remedy for enterprises

To assist the economy through the challenging times, the State Bank of Vietnam (SBV) has gradually reduced and maintained the interest rate at a low level, with three sharp reductions, coupled with directing credit institutions to proactively reduce lending interest rates at a reasonable level, and contribute to supporting and accompanying businesses in overcoming difficulties.

As a result, credit institution lending interest rates fell by 0.7 per cent in the first nine months of 2021, after falling by 1 per cent in 2020.

Simultaneously, the SBV has directed commercial banks to laser focus on supporting priority sectors, such as manufacturing sectors, agriculture, and limit lending to possible risk areas, such as real estate and securities investment.

By the end of October, the whole banking system’s credit rose by over 9 per cent compared to the end of 2020, much higher than the 6.48 per cent level in the same period last year.

Notably, the SBV has promptly adjusted its policy for debt rescheduling, debt restructuring, and fee and interest exemption, which is clearly prescribed in Circular No.14/2021/TT-NHNN dated September and which adjusts Circular No.01/2020/TT-NHNN from March 2020. This policy is viewed as highly relevant and practical by local and foreign firms and experts, as an instant remedy to help cash-strapped enterprises.

Furthermore, the exchange rate roadblock has also been flexibly controlled, in tandem with micro and macro balances, market movements, and monetary policy targets. Since the beginning of 2021, the foreign currency market and exchange rates remain stable and legal foreign currency demands have been completely supplied, creating favourable circumstances for production and economic operations. This fosters international trade cooperation and boosts foreign investor confidence in Vietnam.

Concerning the support policy for disadvantaged people directed by the National Assembly, the government, and the prime minister, the SBV has promptly deployed refinancing packages for the Vietnam Bank for Social Policies with an annual interest rate of zero, requiring no collateral and expelling most of the usual loan conditions and yielding the most optimal conditions for the vulnerable customers. It is noted that lowering lending rates and supporting packages are not equal to lower lending criteria.

Even in the debt restructuring framework outlined in circulars 01, 03, and 14, there are two crucial requirements: actively supporting businesses through the debt deferral structure, but also requiring credit institutions to make adequate risks provision, classify debts according to their current status, and avoid hiding non-performing loans (NPLs), to name a few.

We also tighten monitoring of risk provisioning and debt categorisation to ensure bad debts are accurately reported, and commercial banks’ earnings must be substantively guaranteed.

Bank NPLs are presently on the rise, which is reasonable given the repercussions of the outbreak’s impact over the last two years. In order to regulate and minimise NPLs, banks’ efforts alone are not enough. Stable operations of businesses are the most crucial element.

This is, nevertheless, dependent on a variety of courses of action from multiple relevant ministries and agencies. In which fiscal policy, public investment policy, import-export policy, and the labour market, among others, must be implemented swiftly and synchronously, and state investment is fully utilised to focus on key priority areas, particularly public investment capital for infrastructure.

Monetary policy, for its part, shall be constantly integrated with other macroeconomic legislation to guarantee the expansion of much-needed capital resources through credit, payment, and foreign exchange mechanisms.

In addition to the policies and processes stated above, a legislative framework is required for companies and credit institutions in Vietnam to quickly respond to the current circumstances of the pandemic, while maintaining stable business activities.

Through communication, clear and unified measures in pandemic control and prevention must be implemented from central to local levels, including at the provincial, district, and commune structures.

In a broader context, Evergrande’s debt crisis in China is wreaking havoc on other markets, and unsettling investors across Asia on whether a potential default by the conglomerate could spill over to other parts of the global economy. Even though the troubled conglomerate has little direct influence on Vietnam, it is still a lesson for emerging nations like Vietnam in terms of real estate credit management.

The SBV has directed, and will continue to direct, credit institutions to focus their credit on production and business fields, particularly priority areas according to government policy; and closely monitor and supervise the granting of credit to the real estate sector, customers with large outstanding loans, ensuring the safety of banking operations, and stabilising the system.

Across the ocean, the growing trend of global central banks to restrict monetary easing measures might cause intricate changes in international capital flows, placing pressure on financial and monetary markets.

Notwithstanding, Vietnam boasts some unique elements that foster our trust in the domestic economy, such as the VND, which has grown over time as a result of the government’s concrete efforts in macroeconomic stability and anti-dollarisation policies.

International capital flows into Vietnam remain upbeat as a result of the country’s medium- and long-term bright prospects, a friendly business climate, and diverse export markets thanks to multifaceted free trade agreements.

The SBV will closely monitor and consider the movements of key central banks globally on their monetary measures. On that basis, the SBV will develop and implement appropriate plans to harmonise and adapt to the global monetary background.