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10 most outstanding features of the banking market in 2008   2008-12-30 - TBKTVN

In 2008, the domestic banking market witnessed its biggest-ever fluctuations in exchange rates and interest rates.


1. Management policies changed all the time


The monetary policies came from tightened ones in the first half of 2008 to loosened ones in the last months of the year. To serve the changed policies, the State Bank of Vietnam made many changes in the basic interest rates, compulsory reserve ratios and forex trading bands.


The central banks raised the basic interest rate three times and slashed the basic interest rate five times. It raised the compulsory reserve ratio once in February, and four times in the last three months of the year. The interest rate for compulsory reserves has experienced five adjustments.


The foreign currency exchange rate policies have seen big changes. The daily trading bands have been widened three times, from +/-0.75% to +/-3%. Meanwhile, the inter-bank exchange rates saw considerable adjustments in June and December


2. Providing loans under the ceiling interest rate scheme


The basic interest rate was raised from 8.25% per annum to 8.75% on February 1, 2008, for the first time since December 1, 2005. Together with the adjustment, the central bank officially re-imposed the ceiling interest rate scheme (the maximum lending interest rate is no more than 1505 of the basic interest rate).


3. Deposit and lending interest rates fluctuated heavily


The tightened monetary policies applied earlier this year once caused liquidity problems to commercial banks, which forced banks to raise the deposit interest rates. The interest rate race broke out in May, while causing fevers in June. Commercial banks raised the interest rates sharply to 19-20% per annum.


The high deposit interest rates led to the high lending interest rates, which in turn led to the stagnation in credit growth as businesses could not afford overly high interest rates.


Meanwhile, the interest rate race received a serious setback beginning at the end of July, when banks’ liquidity was improved. Banks have been rushing to slash interest rates, at least eight times so far. The deposit interest rate has plunged from the highest peak of 19% per annum to 8%, while the maximum lending interest rate from 21% to 12.75%.


4. VND/US$ exchange rate increases sharply


The VND/US$ exchange rate has increased by 9% since the end of 2007, a sharp increase if compared with the modest increase of 1% in the years before.


The year 2008 witnessed the forex trading band widening three times, and the inter-bank exchange rate increasing twice, adjustments that have never before been seen in history.


5. Licensing new banks


After a decade of interruption, the year 2008 witnessed the resumption of licensing to commercial banks. The market welcomed two new members: Lien Viet and Tien Phong banks. In December, the central bank granted a new license to Bao Viet bank, which is expected to become operational in early 2009.


Also in 2008, the central bank officially licensed 100% foreign banking entities to HSBC, ANZ and Standard Chartered.


6. NPL tendency to increase


The difficulties of the national economy and banks’ operation can be shown in the increase of the non-performing loan. In 2007, the NPL ratio of most state-owned banks was reportedly at 3%, and the figure was less than 2% for joint-stock banks. Meanwhile, some banks are expected to have the NPL ratio at over 5% this year.


7. Banks bearing global financial impacts


In September 2008, the financial crisis broke out in the US and has since spread throughout the world.


The first reaction of Vietnam’s commercial banks was withdrawing capital from foreign banks and closing some international payment accounts. Foreign banks in Vietnam have confirmed their continuing operation in Vietnam.


8. Most banks cannot meet targeted profit


This was for the first time in the last five years that many banks had to adjust their business plans and target profit due to the difficulties they faced in the first half of the year.


The banks’ speed-up strategy has been replaced with a strategy on stabilizing banking operation, with the credit safety and corporate governance put as top priorities.


9. A series of lending operations have been tightened


In 2007, the banking market witnessed a boom in credit growth (increased by 51.39%, with the loaning increasing rapidly in real estate, securities and consumer credit). However, in 2008 banking products were tightened.


The tightened monetary policies and the difficulties in liquidity during the first half of the year were reasons for many banks to close their doors to banking operations.


10. Many banking activities made public


The heavy fluctuations in the exchange rates and interest rates caused many problems in the relations between banks and clients in 2008. In July, the State Bank made public several violations in bank-client relations. On July 2, the central bank launched a hot line, and after only one month, the hot line received nearly 2,000 pieces of information relating to the violations of credit institutions and suggestions on policies.

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