The financial and banking sectors faced the most upheavals in 2011. Following are some highlight events in these sector during 2011.
1.Fight against dollarization
To limit foreign-currency credit and stabilize the foreign currency market, the State Bank of Vietnam on April 9 issued Circular 09 which set a ceiling for foreign currency deposit rate for organizations at 1 percent per annum, and for individuals at 3 percent per annum. On June 1, the central bank issued Circular 14 to lower the ceiling deposit rate in US dollars to 2 percent per annum for individual clients. It also cut the interest rate for surplus foreign currency compulsory requirements of credit institutions at the central bank to 0.05 percent per annum from 0.1 percent per annum. In particular, the central bank also narrowed items that could avail loans in foreign currency, and limited the demand to borrow foreign currency for import of goods. To ensure the exchange rate’s stability, the government also promulgated Decree 95 which regulated penalties up to VND500 million for violations in the monetary and banking sectors.
2.Restructuring of bullion market
Gold advanced around 25 percent in 2011, the biggest gain when price hit VND49.2 million a tael on August 23. The gap between domestic and global prices sometimes rose to VND4 million a tael. According to the central bank, besides a sharp rise in global price, the gold fever was also caused by local speculators. Thus, the central bank allowed gold imports again to stabilize gold price. In addition, it gave the nod to five commercial banks and Saigon Jewelry Company (SJC) to sell gold at prices quoted by SJC, to lower the gap between local and global prices. The central bank had presented to the Government a draft decree on gold trading control with many measures to control gold bar manufacturing and trading. Accordingly, SBV will hold a monopoly in producing and trading gold and SJC will now be a national gold brand.
3.Restoring order in ceiling interest rate
Some small banks pushed their interest rates to above the rate cap of 14 percent per annum or even to 18-19 percent per annum in the last days of February, dragging other major banks into the interest rate race. After SBV said it would dismiss or suspend banks’ leaders for three years for any violation of the cap, commercial banks sought to trap each other to violate the rate cap then denounce to the central bank. The central bank had ordered several commercial banks to dismiss their leaders. This helped restore the interest rate order to 14 percent per annum among banks.
4.Interbank exchange rate rises 9.3 percent
The State Bank of Vietnam raised its interbank exchange rate by 9.3 percent to VND20,693 per dollar from VND18,932 per dollar on February 11. At the same time, it narrowed trading range from ±3 percent to ±1 percent. These measures allowed the central bank to control the exchange rate initiatively and ensure market liquidity to curb trade deficit and support monetary policy flexibility. By the end of this year, the exchange rate was basically stable; national foreign currency reserves improved; and the position of the Vietnam dong was consolidated. After a rise of 9.3 percent in the interbank exchange rate, the exchange rate had not been adjusted more than 1 percent on interbank market, and not more than 1.5 percent on black market.
5.Interbank interest rate surges sharply
Interbank interest rate rose to 30-40 percent per annum, 3-4 times higher than lending interest rate on residential market, and about the same level as interest rates on black credit market. For the first time in history, credit prestige was seriously damaged on interbank market. Banks had to mortgage their properties, including real estate, gold, and foreign currency, to be given loans after some small banks failed to pay their debts.
6.Key interest rates raised on OMO
The central bank had raised benchmark interest rates three times on open market operations (OMO) to carry out a tight monetary policy to curb inflation. Particularly, refinancing rate increased to 15 percent per annum from 8 percent; the rate for overnight lending in interbank electronic payments and for offset deficit loans in bank clearing rose to 16 percent per annum from 8 percent; and discount rate jumped to 12 percent per annum from 7 percent.
7.Alarming rise of bad bank debts
The State Bank of Vietnam set credit growth for the whole banking system below 20 percent this year, and continued to lower to 17-19 percent. It also ordered commercial banks to keep outstanding loans in non-manufacturing sectors as high as 22 percent by June 30, and below 16 percent by December 31. This led to a race to reduce non-production loans among commercial banks, badly affecting real estate and stock markets, and causing bank bad debts to rise. The governor estimated that bad debts would account to 3.6-3.8 percent of the total outstanding debts. However, this calculation was based on Vietnam’s accounting system. According to Fitch Ratings, the rate of Vietnam’s bad debts is much higher.
8.Rise in ATM crimes
ATM booths of several commercial banks were continuously attacked. In Hanoi, within just two months, six ATM’s were attacked and billions of Vietnam dong stolen. Banks and authorities have warned that Vietnam has become a destination for high-tech ATM criminals. Banks have been strengthening their security to combat ATM fraud and theft.