At a recent seminar to assess the impact of Vietnam’s economic integration after two years of joining the WTO, participants said that after WTO membership in 2007, the Vietnamese macro economy was greatly affected by the complicated fluctuations in the world economy, as inflation saw an increase of 12.63 percent in 2007 and 21.65 percent over the past eight months of 2008.

In the face of the soaring inflation rate and trade deficit, the Vietnamese Government has devised eight major measures as its prime target to curb inflation.

Under Government guidance, the State Bank of Vietnam (SBV) has tightened monetary policies and taken synchronous measures. As a result, positive progress has been seen in the nation’s economy thanks to a gradual drop in inflation rates and the trade deficit as well as an increase in attracting foreign investment and a stable monetary and foreign currency market.

Poor monetary management capacity

The Deputy Head of the SBV’s Monetary Policy Department, Nguyen Thi Kim Thanh admitted that the bank’s poor management of monetary policies and interest rates as they have had little impact on the national economy.

Through its monetary policies, the SBV needs to stabilise the monetary market, cut soaring inflation rates and get prices under control in order to reach the short-term economic growth target set by the Government, said Mrs Thanh.

In spite of improvements in its interest rate, which is gradually shifting to a basic interest rate mechanism, the SBV has failed to meet the market’s supply and demand and define a decisive interest rate.  Such limitations have posed a great challenge for the SBV in managing monetary policies during international integration and the opening up of the financial markets.

Lowly competitive services

Currently, banks mostly provide credit, and monetary transfer services. Apart from the newly-emerging banking card services, other services related to property and investment management have not yet been developed.

According to a representative from the Bank for Investment and Development of Vietnam (BIDV) said that commercial banks’ management capacity remains poor and their registered capital is still low while the average capital of the 10 biggest commercial banks in Vietnam reach a mere US$0.5 billion.

In recent years, credit organisations have recorded a high growth in credit limits and capital mobilization but their technological infrastructure, banking branches’ activities and management capacity are still poor.

“The banking system lacks transparency”, said Nguyen Thi Mui, deputy director of the Financial Academy. Mrs Mui added that information on banks’ reports is open but is not reliable because the Vietnamese accounting system is not in line with international standards and internal checking and controlling to limit risks is weak. Therefore panics arise due to false information.

Any plans for the banking system?

Mrs Thanh said that to have an effective monetary policy during the integration process the SBV must gradually develop necessary measures to fulfill its target of stabilising prices, and implementing exchange rate liberalisation in line with the development of the foreign currency market and monetary and financial policies.

Mrs Thanh emphasised that in the integration process is necessary to improve transparency, develop payment system and accelerate the completion of a legal framework.

One of measures to consolidate the operations of the banking system is to complete the legal foundation. Accordingly, the State should adjust the Banking Law and Law on Credit Organisations as there still remains obstacles to banking operations and the implementation of monetary policies.

The law must stipulate the independence of the SBV and Mrs Thank affirmed that the SBV’s independence is currently at its lowest level. According to the Law on the State Bank of Vietnam, the SBV is not independent in establishing target, developing operational criteria and choosing its management tools.

Mrs Mui said that commercial banks should be restructured to reduce the number of banks while improving financial capacity and technological and management qualifications. In recent times, Vietnamese banks compete with each other by bringing out high interest rates to attract customers.

Some financial experts said that it is necessary to form an agency to supervise finance and securities, to improve the quality of information policies and to form a strategy between management and supervision agencies.

Le Dac Son, general director of VP Bank said that the Government should encourage banks to introduce modern services to help them improve their competitiveness. In addition, the Government should help small banks to merge by developing a plan and legal framework for merging banks.