Monetary policy supports economic growth

NFSC Vice Chairman Truong Van Phuoc said M2, which is broadly known as a measure of the nation’s money supply, including cash, checking deposits, savings deposits, money market securities, mutual funds and other time deposits, increased some 13% this year. 

This was a “necessary increase” compared to a 10% rise last year, he said.

Lending interest rates in the country averaged 8.5% and tended to decline in the final months of 2016 following Government directives and efforts of the banking sector, although deposit rates remained high in the context of rising inflation.

Phuoc said the country also succeeded in operating the foreign exchange market, as it controlled hikes in the dollar/dong exchange rate within a 1% band, while reaching some US$40 billion in the national foreign reserve this year.

In 2016, the banks returned 78% of their capital resources to the economy, compared to 73% in 2015. Capital mobilising from enterprises and citizens grew by 3% this year.

Phuoc said overall credit growth, expected at 18-19% this year, would be significant, but capital distribution should be more suitable.

Although property credit increased only 12% this year against last year’s 28%, consumer credit expanded by up to 40% in 2016, with half of the consumer lending involved in the purchases of homes.

“Generally, capital distribution for production and business activities is positive, but we must spend capital on real estate in a careful manner to avoid repeating the ‘realty bubbles’ that occurred several years ago,” Phuoc said.

Phuoc noted that the country will handle some VND100 trillion ($4.44 billion) in bad debts in the banking system this year. The Vietnam Asset Management Company will process 20% of the amount and let banks settle the remaining amounts themselves.

Banks were expected to retain about VND40 trillion in combined after-tax profits after establishing provisional funds worth VND70 trillion to cover the risks of bad debts this year, he said.

An NFSC report added that slowing global economic growth, especially lower trade growth and declining oil and farm produce prices, negatively affected Vietnam this year. 

Natural calamities and climate change also hit the domestic economy in 2016.

Progress in the national finance system assisted economic growth, while keeping inflation stable. This also supported business development and consolidated investors’ confidence in the local market.

The stock market posted growth of nearly 20%, with a capitalisation value reaching 38% of the country’s gross domestic product (GDP) in 2016, compared to 32.4% in 2015.

The report forecast that Vietnam’s economic growth would improve next year, as institutional reforms were likely to better the investment climate and stimulate the private sector, allowing energy and farm produce prices to recover.

However, the domestic economy would also face significant challenges in 2017 as global economic conditions remained uncertain, with prices of major commodities fluctuating unexpectedly.

Additionally, non-traditional monetary policies of large economies might lead to unpredictable moves in foreign investment flows, the report said.