The State Bank was in hard pressure in 2016 as it was asked to lower the interest rate, while it had to regulate the monetary policy to ensure the high GDP growth rate set by the National Assembly.

However, the interest rate did not escalate as warned, but it decreased by 0.5-1 percent per annum in the last months of the year.

 

Regarding the exchange rate, SBV’s Governor Le Minh Hung said unlike the previous years, the central bank did not have to struggle hard to stabilize the exchange rate in 2016. However, the market was still stable and the liquidity was profuse.

 

Dong and foreign-currency liquidity was plentiful throughout the year. The interest rate was stable at a five-year low while the dong/dollar exchange rate was also stable with the dong depreciating by 1.2 percent.

Stabilizing the bank loan interest rate was a great success of the State Bank, though the interest rate in Vietnam is still high compared with regional countries.

 

The input interest rates are 5 percent for short-term deposits and 7 percent for long-term (more than 12 months). Therefore, the lending interest rates are between 7 and 9-10 percent per annum. 

If the interest rates were lowered, banks would not be able to mobilize capital through deposits if the inflation rate were 5 percent.

 

The debate about interest rate being slashed further still continues. The current high interest rates don’t support economic growth. Vietnamese products are not competitive partially because of high capital costs.  

Some analysts pointed out that this is not feasible now as the banking system has huge bad debts which gobble up banks’ profits and push capital costs up.

 

To settle bad debts, it is necessary to have seed capital. How big the capital should be and where it is from remain controversial. If banks’ provisioning is the only resource to settle bad debts, it would take banks tens of years to finish the settlement. If so, the consequence the bad debts will cause to the national economy will be higher than the seed capital amount.

 

The process of restructuring credit institutions has been going more slowly than planned. The bankers who deliberately violated the laws on lending, causing serious consequences, have been brought to trial. In the immediate time, Vietcombank and Vietinbank, the two state-owned banks, will have to give support to zero dong banks (the banks taken over by the State Bank at zero dong).