The newly-appointed Governor of the State Bank of Viet Nam, Nguyen Van Binh, discusses the past year of ups and downs for the financial market and answers questions on plans to reform the banking system this year.

Would you briefly comment on the financial market in 2011?

During the first months of the year, the banking market experienced huge pressure from the high inflation rate, improper administration and violations that unfairly manipulated the financial system. Several commercial banks faced the threat of losing all liquidity, and this also negatively affected the businesses of other banks. The forex and gold markets also experienced a 'high fever' due to global price fluctuations.

To deal with these issues, the State Bank of Viet Nam (SBV) has tightened control of credit growth to ensure it stays under 20 per cent, with the money supply at around 15-16 per cent. We have also capped the deposit interest rate at 14 per cent and will strictly punish deposit violations.

Since October, the lending interest rate has been reduced by 2 percentage points to 17-19 per cent per year. The credit structure has been adjusted to prioritise agricultural production, rural development, small and medium sized enterprises and exports, while loans are limited to non-production sectors.

Liquidity in relation to the Vietnamese dong has basically been secured. The forex market has been stabilised. The central bank also worked with security agencies to handle illegal forex transactions.

The SBV provided a quota for commercial banks to import gold to stabilise gold prices in line with global prices, to minimise activities of speculators and to ease the pressure on the forex market.

I think the positive changes will ensure good conditions for the system next year.

The State Bank will aim to keep the lending interest rate at 15 to 17 per cent.

What are the central bank's targets for 2012?

The central bank will try to control credit growth around 15-17 per cent, as set by the National Assembly, to help control inflation and support the Government to achieve an economic growth target of 6-6.5 per cent.

Besides these targets, I'm really concerned about how to reduce the lending interest rate. The lending interest rate only decreases when the inflation rate is lowered. However, Viet Nam's inflation rate is under intense pressure to increase.

Although the economy still faces difficulties, the central bank is aiming to have the inflation rate below 10 per cent as part of efforts to manage monetary policy. If achieved, I assume that the deposit interest rate will be at around 10 per cent by the end of next year.

Agriculture including farming, fishery and forestry production and rural development will be the top priority. The second priority is the export and the auxiliary industry.

Credit will be open to small and medium enterprises and good-performing enterprises in order to help them get enough capital to manufacture consumer goods for the domestic market and for export.

Viet Nam is in the process of reforming the agriculture sector. Could you tell us more about the credit plan for this sector?

Bank loans will be provided to support the establishment of rice and fishery product processing factories, as well as the development of the network of warehouses. Bank loans will also focus on supporting farmers to stabilise production and improve productivity.

I have instructed the Agriculture and Rural Development Bank of Viet Nam (Agribank) to spare 75-80 per cent of total outstanding loans to lend to the agriculture sector. The central bank also encourages other banks to invest in the sector.

What about the credit plan for the property market this year, particularly the segment for low and middle income earners?

The State Bank will issue more regulations on lending to the non-production sector, including loans for low and middle income people to purchase houses or apartments in urban areas and near industrial parks.

This is one of our priorities next year.

In terms of a credit cap on the property market and other non-production sectors, we will set up different caps for different credit institutions, depending on their financial capacity.

Next year, we will hasten inspection of the monetary market and strictly supervise credit institutions in order to minimise risks and non-performing loans while ensuring the health of the whole system.

Viet Nam will restructure the economy this year. As the head of the banking and financial sector, could you talk about the stages of this restructuring process?

The State Bank will carry out the stages ratified by the Government. The restructure aims to improve the security and effectiveness of the system. We are determined to solve the problems of weak banks to ensure the safety of the whole sector.

Restructuring the economy and the banking system particularly is a challenging target which may take a lot of effort across many years.

The restructuring aims to establish two Vietnamese banks which are able to compete with other regional banks. Moreover, we aim to create 10 to 15 strong banks to become pillars of the economy. The industry still accepts small banks but these banks must be healthy.

In addition, the central bank will consider setting up micro-financial institutions in order to support every social class and ensure they have access to banking services. The first steps of the restructuring process have been taken in a cautious way.

Source: VNS