Different ways to grow

Vietnam is in search of new growth drivers as financial market management is set to create momentum for national economic development.

To build on the successes of 2018, when GDP growth was 7.08 per cent, 2019 will be a year of “breakthroughs”, Prime Minister Nguyen Xuan Phuc has said many times. This has become a key message of motivation for all economic sectors to strive towards “the greatest achievements” by 2020.

Among a host of important factors identified for breakthrough growth this year, financial market management was the main topic of discussion at the Vietnam Economic Conference 2019, with the theme “Breakthrough from Growth Drivers”, held by Vietnam Economic Times in March in Ho Chi Minh City.

Financial market prospects

Different ways to grow

It’s been forecast that interest rates can be kept stable this year if inflation eases, global oil prices don’t fluctuate, and a weakening US dollar lessens pressure on exchange rates. Pressure on exchange rates is not considered high, however, because domestic and international factors have seemed more favorable than forecasted.

As for money supply, credit in the economy has been forecast to rise at a cautious 12-14 per cent in 2019. Growth is expected to be controlled at a reasonable level to support economic growth.

Although Vietnam’s economy is quite open, its relatively small size means any unforeseen movements in major global countries can have an impact. Its financial sector is in a transition period, requiring improvements in policy reforms that follow international standards, according to economic analysts.

The application of information technology (IT) is promoting the financial sector’s development while also bringing about certain risks for businesses and the State. The development of the banking and finance market in the context of green development also needs to take into account sustainable solutions.

To manage the market sustainably, Dr. Ha Huy Tuan, Vice Chairman of the National Financial Supervisory Commission, said the administration of monetary policy will continue to maintain control over banks’ capital flows into high-risk sectors such as real estate and securities. Efforts are also in place to lower interest rates in priority sectors.

He also recommended that Vietnam continue consolidating and completing its management over commercial banks, with a focus on the early adoption of commercial bank governance standards in accordance with international practices and accelerating the application of Basel II standards. On that basis, the country should strengthen measures to prevent and combat inter-sectoral risks and take advantage of opportunities to apply IT while ensuring risks are avoided.

Issues in Vietnam’s banking, monetary, and financial markets of interest include governance and transparency, credit limits, and capital raising for commercial banks, among others, as well as factors in the global context and Vietnam’s development policies.

Free trade agreements (FTAs) have given Vietnam a new position and profile but require leverage solutions in the banking, monetary, and financial markets to facilitate domestic and international businesses in strengthening cooperation and trade promotion, contributing to bolstering national economic growth and sustainable development, with a focus on approaching international standards, regulations, and practices with specific roadmaps and commitments from relevant parties.

Credit risk management

A question was asked from a business perspective regarding what commercial banks should do to develop credit products, because many enterprises may face difficulties accessing loans to support business and production activities, which would then affect economic growth.

In answer, Mr. Nguyen Dinh Tung, CEO of the Orient Commercial Bank (OCB) said that credit products are the main business line of commercial banks.

“The State Bank of Vietnam (SBV)’s policies to slow down credit growth are contrary to banks’ credit business,” he said. “Businesses must always expand their products and market share, but in the banking sector we must not scale up organically but instead do so under the SBV’s supervision.”

However, “macro-policymakers have their own thinking and in this case credit growth is being slowed,” he went on.

 

“Commercial banks, in turn, have their own ways of managing business strategies, including the application of risk management systems, which OCB successfully applied more than four years ago. Solutions for banks to develop business while ensuring compliance with the SBV’s credit growth limits include issuing corporate bonds directly to retail customers and raising capital by selling bank shares to investors, both of which OCB is doing.”

In talking about the SBV’s credit growth limit of 14 per cent, Mr. Pham Manh Thang, Deputy General Director of Vietcombank (VCB), said it recorded nearly $775.8 million in profit in 2018 and even higher figures have been forecast for this year, including its credit growth target. In order to achieve its targets, VCB continues to introduce product packages that have achieved good business results and will promote digital banking development this year.

“Compared to other commercial banks, VCB has a smaller number of customers and transaction points [16,000 customers and 534 transaction points and branches], so we are promoting digital banking to develop the number of customers using our services, and this in line with the general development trend,” he said.

He added that the limit of 14 per cent credit growth for banks is not difficult to meet, with any difficulties seen in risk management. In the past year, however, under directions in Circular No. 41, the SBV announced that VCB is one of three banks meeting Basel II standards so its credit limited can be eased and grow more than 14 per cent.

Institutional reform needed

In order to manage the financial market while creating breakthroughs for Vietnam’s economy, Dr. Tran Du Lich, a member of the Prime Minister’s Economic Advisory Group, said completing macro-economic institutions is an urgent requirement for the country to achieve its targets.

Deeper integration into the global economy over recent years has helped Vietnam increasingly improve its institutions, approach international practices, and meet international market commitments. Given the opportunities and challenges of joining global supply chains, Vietnam is set to face increasing competition.

The country’s FTA partners are all important trade partners, reflecting its high trade value and high proportion of total trade with the world over the years. In the 2016-2020 period, according to the commitment roadmap, most FTAs Vietnam participates in will eliminate most tariff lines.

New generation FTAs eliminate the majority of tariffs imposed on Vietnamese and partner countries’ exports, including special partners such as the US and the EU. Deputy Minister of Planning and Investment Nguyen Van Hieu said that the positive side of FTAs is attracting investment, connecting trade, opening markets, and improving workplace productivity, which will boost the country’s domestic economy.

At the same time, this also will enhance Vietnam’s position in the global economy, where it will gain further recognition from the international community as an important political and economic partner of many countries and regions.

However, Deputy Minister Nguyen Van Hieu pointed out that Vietnam will certainly have to step up efforts to reform FDI attraction, creating a favorable investment environment and trade gateway in order to create consistency.

The business community also needs to actively improve management capacity and the training of human resources to increase their abilities to more effectively benefit from international economic integration and participate more freely in free trade markets.

With economic advantages and a solid political situation, according to Dr. Lich, Vietnam is rightly considered an attractive destination for foreign investors. In that context, the country has been building and implementing a series of related efforts, such as completing institutions, supporting private enterprises, and promoting small and medium-sized enterprises (SMEs) to better take advantage of opportunities for economic development breakthroughs. At the same time, the movement and change of policy mechanisms in general and the banking, monetary, and financial sectors in particular need to be consistent with market movements.

The annual Vietnam Economic Conference 2019, with the theme “Breakthrough from Growth Drivers”, was organized by Vietnam Economic Times on March 12 at the Lotte Legend Hotel Saigon in Ho Chi Minh City. The conference was attended by leaders from ministries and departments and economic analysts and attracted more than 300 participants.

Speakers discussed the basic conditions needed to promote breakthroughs in Vietnam’s economy during 2019 and the years ahead. The seminar has two sections - the first on the sustainable management on the banking and financial market, creating breakthroughs for growth, while the second discussed breakthroughs in 2019 from the private sector.

VN Economic Times

 
 

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