The report evaluating the impact of Covid-19 on the economy of the National Economics University provides some recommendations as well as solutions for the State Bank of Vietnam (SBV) and credit institutions.
The first solution is that SBV directly provides liquidity support to banks with practical and specific measures to businesses facing difficulties, thereby supporting the enterprise system, especially small and medium-sized enterprises (SMEs) affected by the pandemic.
SBV may consider lowering the interest rate by 0.1-0.2 percent in the next one to two months, or increasing the credit growth target, but only for banks with practical support for businesses. Priority should be given to continuing structural reforms towards a healthier monetary system in the future, rather than spreading it to all credit institutions. Interest support, if any, should be limited to enterprises directly affected by the disease in the direction of reducing interest rates or sharing difficulties from the banking industry, rather than expanding monetary or credit to the economy. Allowing credit institutions to reschedule their repayment terms but keep the same group of debts for good and potential businesses directly affected by the Covid-19 pandemic.
The second solution is to supplement the sixth list of subjects entitled to ceiling interest rate priority in Article 13, Clause 2, Circular 39/2016 on the Regulation on lending activities of credit institutions: areas directly affected by pandemics or climate change.
The solution is derived from three basic reasons. The first is the increasing trend of epidemics and climate change of an international nature. The openness of the Vietnamese economy also makes the world disease like Covid-19 easily spread to Vietnam and seriously affects businesses, individuals and organisations in the economy. The second reason is that currently, five priority areas of Vietnam do not have content to support businesses and organisations in this field. Thirdly, ceiling interest rates have short-term effects and certain direct impacts in some cases in Vietnam. This is one of the tools that directly impact the credit market, but also allows credit institutions to have certain flexibility and an active role when applying this regulation.
The third solution is SBV strengthens measures to stabilise exchange rates in the short term. SBV needs to provide international liquidity within the permissible range of resources in the domestic foreign exchange market, in order to stabilise finance. At the same time, SBV uses access to international capital to increase its national foreign exchange reserves, in order to provide capital to handle stagnation and to promote post-epidemic growth.
Finally, in the worse scenario of the economy, a delay of two or more quarters can (i) take into account the central bank’s bond issuance plan to support domestic and international liquidity of Vietnam; (ii) set the scenario for the macro economy if the currency’s devaluation falls into 1-3%, 3-5%, and 5-7 percent to have appropriate options for their monetary policy; and the most extreme (iii) prepare a plan to cut off the foreign exchange market, namely using administrative measures related to current transactions to provide only services for health and business activities.
The fourth solution is that credit institutions take advantage of opportunities to develop new markets, products and distribution channels.
Banks need to develop specialised banking products right away for groups of customers who are enterprises in industries that have relative business advantages during the Covid-19 pandemic such as online trading, food, essentials, masks, hand wash, and body temperature meters. Banks also offer a package of products for this group of customers such as: credit limit, L/C, payment for employees, opening payment channels for customers, business insurance, insurance for officials and employees of that enterprise, and money management.
Banks also need to develop specialised short-term credit products to support SMEs affected by Covid-19 such as inventory financing, fast export loans, providing SMEs to achieve sales through export support activities, while supporting market regulation through domestic distribution channels. Businesses can apply for a credit line before completing or while pursuing opportunities abroad, such as identifying a new customer abroad if the export sales reduce due to Covid19.
In addition, banks need to enhance the development of payment of internet banking and mobile banking, ensuring safety for these transactions. In the near future, banks can increase payment demand by reducing fees or free with existing customers, instruct on how to use on the website or via text message to customers.
Banks have stepped up development of consumer loans to individual customers to stimulate the economy. Increasing consumer demand for individual customers is the source for sustainable business and production development, breaking the vicious cycle of the economic downturn.
Credit institutions need to re-test the effectiveness of the established policies on risk management, including operational risks. This is a good opportunity for credit institutions to assess the current operating procedures and personnel system, whether there are any adjustments to optimise them. Credit institutions also identify who is the best staff and who can be cut down, thereby optimising operational costs. In addition, the disease is also an opportunity for management to review policies to cope with risks, actively adjust or rebuild possible scenarios, thereby formulating options more effectively.
Finally, banks need to test the use of electronic authentication (e-KYC) in transactions so that customers do not have to go to the transaction offices or branches directly.
The fifth solution is that credit institutions need to unify and notify enterprises of common standards for rescue if they do not want to be abused and capital flows go out of the initial target. Credit institutions need to publish clearly and transparently the criteria and supporting procedures for them to grasp. The support from the bank is divided into two options. The first option is a loan package (a support package of 250 trillion dong that banks commit to disburse and other packages if any) to support liquidity for businesses surviving through the epidemic season. The second option is to refurbish bad debts by Covid-19, to give businesses more time to recover, such as repayment schedule, interest rate reduction, fees or stay in the same debt groups.
