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Banking review for 2009   2009-12-24 - VNE

Though the State Bank of Vietnam has applied stable interest and exchange rate policies in 2009, the market still see-sawed at times. Here are the 10 most outstanding characteristics of the financial market in 2009, according to VnExpress.


Monetary policies stable


For 2009, monetary policies became more stable than in 2008, when policies were adjusted regularly. In 2008, the basic interest rate was adjusted eight times, the compulsory reserve ratio was adjusted five times, the foreign exchange trading band was adjusted three times, while the interbank exchange rate was changed twice.


This year the State Bank of Vietnam (SBV) only slashed the basic interest rate once (from 8.5 percent to seven percent) and then raised it again to eight percent on December 1. SBV adjusted the foreign exchange trading band, widening from +/-3 percent to +/-5 percent on March 24 and then narrowed the band to +/-3 percent again on November 26. The interbank exchange rate increased sharply once by five percent on November 26.


Foreign currency market hot


Short supplies of foreign currency have characterized the national economy in 2009.

The shortage appeared in the second quarter of the year, when export companies held onto foreign currencies and refused to sell dollars to banks. Commercial banks did not have foreign currencies to sell to businesses, but they did have capital in foreign currencies since no one wanted to borrow in foreign currencies for fear of further dollar price increases.

To cool the market, in late November SBV decided to narrow the foreign currency trading band to curb the decrease of the dong’s value and adjust the interbank exchange rate. Meanwhile, the Prime Minister requested large state-owned groups and corporations to sell dollars to banks and improve the supply.


Deposit interest rates abnormally high


Banks’ deposit interest rates have been escalating since July 2009 and breaking records of nine percent, ten percent and then 10.5 percent

 The deposit interest rate has become so dangerously high that SBV has threatened to inspect the commercial banks offering rates of 10.5 percent and higher.


Interest rate subsidy program in focus


In February 2009, the Government kicked off the demand stimulus package with the interest rate subsidy program. The short term loans aim to help businesses overcome the difficulties caused by the global economic crisis.


By December 17, the total outstanding loans under the interest rate subsidy program had reached 415,216.48 billion dong.


Credit growth rate exceeds targeted level


Earlier this year, SBV decided that the credit growth rate in 2009 must be between 21-23 percent, but raised it in mid-year to 30 percent. Financial experts believe that the actual figure for 2009 will be 36 percent, making the 2009 credit growth rate much higher than that of 2008, at 21 percent.


Banks’ satisfactory profits


Commercial banks remained cautious in their 2009 business plans, anticipating a difficult year due to the economic downturn. Yet profits have been “more than satisfactory.” A lot of banks reported that they had fulfilled their yearly business plans just after 11 months of 2009.


Banks have also had more income from services rather than relying on credit. The proportion of income brought by credit at many banks has decreased from 80 percent to 70 or even 60 percent.


Foreign banks increase influence


In 2009, Vietnam witnessed the establishment of 100 percent foreign-owned banks. Five such banks received operating licenses in 2009, including HSBC, Standard Chartered, ANZ, Shinhan and Hong Leong.


Despite a difficult year, foreign banks and branches had a prosperous year with pretax profits of 2,612 billion dong.


Banks rushing to list shares, late in equitization


During 2009, many banks listed their shares on the stock market, including VCB of Vietcombank, CTG of Vietinbank and EIB of Eximbank. Meanwhile, joint-stock banks are making hectic preparations to list shares on the bourse in early 2010.


Equitization is moving along slowly, with Agribank, BIDV and MHB still not equitized.


Question on basic interest rate raised


Since 2006, SBV has proposed four times that the National Assembly amend the regulation on the basic interest rate, but the proposal has not been approved.


Opinions still vary about the role of the basic interest rate in the national economy. Under the current regulations, the ceiling commercial interest rate must not be higher than 150 percent of the basic interest rate.


2009, a year of rumors


Many whispers and speculations spread in Vietnam this year, sometimes causing chaos in the market, including the issuance of compulsory bonds and providing of capital to banks to help them improve liquidity.


Such rumors mostly appeared at the end of 2009, after the central bank made an unexpected adjustment on the basic interest rate.

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