Mr Nguyen Ngoc Bao, Head of the Monetary Policy Department under the State Bank of Vietnam (SBV), tells about the difficulties for the banking sector in mobilising capital.
Why do you think commercial banks are encountering difficulties in mobilising capital?
I think there are two main reasons. Firstly, credit growth by the end of last year was quite high, at 37.73 per cent higher than in 2008 and exceeding the initial target of 30 per cent for the year. Last year’s stimulus plan impacted on demand for capital in the economy and pushed up credit growth.
Secondly, commercial banks are now experiencing greater competition from other investment channels such as the stock market and the real estate market. Many investors see bank savings earning a lower return than in the stock market. It is likely that the most money flowing into the stock market has been converted from bank deposits.
At the moment there is a trend among people to withdraw money from their bank account for Tet spending. Enterprises are also in need of capital to improve production. So commercial banks are facing temporary difficulties in mobilising capital.
What is SBV’s response to easing the difficulties?
The central bank said it would regulate monetary and fiscal policies in a proactive, flexible and cautious manner to stabilise the macro-economy, ensure economic growth and prevent inflation. In early December 2009 the SBV had decided to raise the prime rate from 7 to 8 per cent per annum, thus raising the ceiling interest rate to 12 per cent from 10.5 per cent. The move created the conditions necessary for commercial banks to raise their deposit interest rate to attract more capital. Moreover, it can strengthen the Vietnam dong (VND) and make it more attractive against the US dollar (USD), lessening concerns over foreign currency reserves. The central bank also intervened timely by pumping VND15,000 billion ($833 million) via the open market to improve liquidity at commercial banks, which eased the interest rate race between commercial banks.
With the government’s decision to close gold trading floors, what are your predictions for cash flows within Vietnam’s economy?
There are several investment channels for investors in Vietnam: the stock market, the real estate market, gold trading, the foreign exchange market and time deposits with banks. If we stop gold trading, money normally invested will then flow in the direction the other channels. In my opinion, such direction will depend on the thinking of investors. Some may say that the stock market provides fierce competition for banks in attracting funds. As for gold trading investors, they understand the differences as well as the risks between gold trading and other investment channels. Therefore, we can’t eliminate the probability that they will change their minds and decide to deposit their money into banks.
What do you expect for capital mobilisation in the banking sector in 2010?
As I mentioned before, due to the high demand for capital in the economy the country’s banking sector is now experiencing difficulties in attracting capital. The SBV has predicted that money will come back to the banks after Tet and tension will gradually be eased by the end of Q1. As for capital mobilisation of the banks during the year, I think that deposit growth will remain steady and be similar to the last year’s growth rate.