In 2019, the monetary policy is managed proactively, flexibly, harmoniously coordinating with fiscal policies and other macroeconomic policies to curb inflation at below four percent, and stabilise the macro economy.
In recent years, the direction of monetary policy management is often indicated by the head of the banking sector in directive 01 issued right in the early days of each year. This year is not an exception when the Governor of the State Bank of Vietnam (SBV) issued Directive 01 on 8th January 2019 on the implementation of key tasks and solutions of the banking industry in 2019. The remarkable difference is that this year’s monetary policy targets the most important goal of controlling average inflation at below four percent and stabilising the macro economy. While management agency only aim to “support economic growth”, instead of “supporting economic growth at a reasonable level” according to the goals set by the National Assembly several years ago.
Due to focusing mainly on the task of controlling inflation and macroeconomic stability, this year, SBV targets to increase total means of payment by 13 percent, credit by about 14 percent. This is the lowest increase in the last five years.
In order to realise these objectives, SBV has set out specific tasks and solutions for the departments and agencies of SBV, the SBV branches in localities and the system of credit institutions. In which, with the system of credit institutions, the SBV Governor required effective credit growth, credit quality control, credit control in accordance with the credit growth target of 2019 and the direction of SBV, focusing credit into business and priority sectors, strictly control credit for risky sectors; at the same time, proactive balancing the financial ability to apply a reasonable lending interest rate on the basis of deposit rates and risks of loans, ensuring financial safety.
Commenting on this view of SBV, Dr Le Xuan Nghia, former vice Chair of the National Financial Supervisory Committee said that tight control of credit growth will help management agencies reduce the risk of crisis from money supply and credit growth which happened before in Vietnam. Therefore, commercial banks will have to tighten lending to risky areas such as real estate, securities, etc. This will “shape” the capital flow into production and business, contributing to creating Greater value added for the economy. “Because of the desire to increase credit, banks are forced to raise capital, otherwise they will be tightened to ensure total credit of only 14-15 percent,” Nghia said.
However, according to other experts, these requirements are not easy to handle for small banks when the operation still relies heavily on credit. Obviously, the direction of credit growth at 14 percent will significantly affect the profitability of banks as credit still accounts for 70 percent, even 80 percent of their total revenue. The profit is narrowed as SBV requires banks to control credit strictly to risky areas that have higher profit margins, while lending rates for production and business are required at reasonable level.
In fact, since 2018, many banks have been forced to adjust their profit targets when credit is tightened. For example, LienViet Post Joint Stock Commercial Bank (Lienviet Post Bank) had to reduce its profit target from 1.8 trillion dong to 1.2 trillion dong when SBV announced that it would not extend credit room for this bank. Meanwhile, VietinBank also reduced its profit from 10.8 trillion dong to only 6.7 trillion dong in the last weeks of 2018 as the bank did not dare to increase credit when the capital adequacy ratio (CAR) fell to the minimum level stipulated by the law.
According to Vietcombank Securities Company (VCBS), in general, the banking industry’s profit in 2019 will be difficult to have a sudden change as it happened in 2018. Only banks that manage bad debts well and make sufficient provisions can maintain stable growth. Meanwhile, Bao Viet Securities Company (BVSC) also forecasts that after-tax profit of listed banks will increase by 13.5 percent in 2019. Net Income Margins (NIM) of the whole industry in 2019 is forecasted at about 3.2 percent, some banks will face pressure to reduce NIM due to high lending/deposit ratio (LDR), such as BIDV, Vietinbank and Vietnam Prosperity Joint Stock Commercial Bank (VPBank).
