The State Bank of Vietnam (SBV) urged local banks to refrain from providing credits for businesses operating in risky real estate, securities, corporate bonds, or build-operate-transfer (BOT)/ build-transfer (BT) transport projects.

SBV Governor Nguyen Thi Hong.

“Credit, instead, should be channeled with preferential rates into Government’s priority fields [agriculture, industry, small and medium enterprises], consumer finance, and production for socio-economic development.”

SBV Governor Nguyen Thi Hong instructed directive No.01/CT-NHNN on the key objectives of Vietnam’s banking sector in 2022.

In addition, the SBV asked banks to tighten lending in foreign currency to avoid the dollarization of the economy, as well as create favorable conditions for businesses and people to access bank loans.

The SBV would continue to monitor the macro-economic situation for flexible and consistent management of monetary/fiscal policies, to stabilize the monetary and foreign exchange markets, and control the credit expansion rate.

“The policy rate should be managed in line with macro balances, the inflation, and objectives of the monetary policies,” stated Hong, while calling for banks to continue lower lending rates for businesses.

Hong expected banks to further restructure debt payment schedules, waive and freeze interest rates for customers affected by the pandemic.

Local banks are instructed to waive and lower transaction costs for customers amid the pandemic while ensuring the smooth operation of payment systems, privacy, and security of the system.

From a macro-perspective, the SBV is committed to finalizing the legal framework for banking operation, focusing on drafting the revised Law on anti-money laundering; revising the Law on the SBV, Law on credit institution, and guidance on the implementation of the Basel II or Basel III standards among banks.

The goal is to promote a healthy, quality, and transparent system of credit institutions that are in line with international practices and local laws.

Another focus for the central bank is to accelerate the restructuring process of the banking sector towards digitalization and refining regulations on addressing bad debts, which are part of a proposal on restructuring credit institutions and resolving bad debts in the 2021-2025 period.

“A favorable legal framework is necessary for banks to promote new business models and services based on digital technologies,” Hong continued.

The SBV stressed its commitment to completing decree on non-cash payment; a sandbox approach for fintech; a strategy for the development of Vietnam’s payment system until 2025.

Inflation target set at 4%

For this year, the SBV targets to keep the inflation rate at around 4%, a key task to stabilize macroeconomic fundamentals and support economic recovery.

The credit growth, therefore, is set to expand at around 14%, pending future adjustment, if necessary.

The SBV would take measures to keep the safe operation of the foreign exchange and gold markets while building up the foreign reserves in case the market turns favorably.

Amid rising bad debts due to the Covid-19 impacts, the SBV aims to keep the ratio at a safe limit of below 3%. The bad debt ratio in 2021 is estimated at 3.79%, however, if taking into consideration debts from customers affected by the pandemic, the rate could go up to 8.2%.

As of late 2021, credit institutions have extended the payment deadline for debts worth VND607 trillion ($26.5 billion), while nearly 775,000 customers were affected by the pandemic and their loans of VND296 trillion ($13 billion) restructured.

Banks also froze and waived interest rates for 1.96 million others with a combined outstanding loan of VND3,870 trillion ($169.7 billion). This resulted in the total amount of profit foregone by banks of VND34.9 trillion ($1.52 billion).