The financial-banking sector has undergone many positive changes as reflected in steady credit growth, lower interest rates and a reduction in cross ownership in banks compared to years ago, according to the Government.

The Government highlighted the positive changes in the financial-banking sector in a report sent to the 13th National Assembly in October.

The State Bank of Vietnam (SBV) said a host of measures have been taken to stabilize the local currency market and the banking system in the past years.

The report showed the existing interest rates are equivalent to 40% of those in the second half of 2011 and lower than in the 2005-2006 period when economic growth was stable.

Short-term lending rates now hover in a range of 6% and 9% per annum while rates for medium and long-term loans stand at 9-11% per year. Enterprises having good financial capability and feasible projects can enjoy annual interest rates of 5-6%.

Interest rates have fallen strongly this year against the previous four years as the Government and the central bank have taken bold steps to restructure the banking system.

The report said the banking system was mired in difficulties in 2011 when inflation was 18.13% while lending rates were quoted at 20-25% per annum.

Many credit institutions offered higher deposit rates than the permissible levels to lure depositors, putting liquidity of the banking system at risk.

The gold market fluctuated and affected the exchange rate between the U.S. dollar and Vietnam dong. Many credit institutions violated currency trading and banking regulations.

Things have changed. The financial-banking sector has turned stable owing to effective solutions adopted to redress the gold market and the exchange rate and deal with cross ownership and liquidity. Capital of banks has been used more effectively and the bad debt ratio of the banking system has fallen dramatically.

The central bank said credit grew at an average of 12.6% per year in the 2011-2014 period and estimated the growth at 17% this year. This growth is well below the average of 33.3% in 2006-2010 but reasonable if the country’s current business conditions and economic growth is taken into account.

Vietnam’s gross domestic product (GDP) growth was 5.7% per year in the 2011-2014 period and is projected to reach 6.5% in 2015, not much lower than the average of 7% in 2006-2010.

More bank loans have gone to production and trading firms, especially those in priority sectors. By September this year, credit for the agricultural sector and rural areas had risen by nearly 64% against the end of 2014. Loans for exporting companies and supporting industries have jumped.

Flexible foreign exchange and interest rate policies and better management on incoming remittances have helped stabilize the macro economy and improve citizens’ confidence in Vietnam dong.

The Government said problems with cross ownership in the banking system and stakeholders and groups of shareholders who dominate banks have been solved.

The SBV has also ordered credit institutions to cope with violations on holdings, cross ownership, capital divestments, merger and acquisition, and assigned staff to the boards of directors at ailing banks in an effort to stabilize the financial-banking sector.

SGT