SBV Governor would be on a “hot seat” in 2013

Feb 9th at 09:58

09-02-2013 09:58:53+07:00

Observes have commented that the unsettled big problems would put a heavy burden on the Governor of the State Bank--Nguyen Van Binh on the next year of his term.

Binh is believed to deserve credit for keeping the dong/dollar exchange rate stabilized over the last two years. He has also successfully eased the interest rates in order to ease the capital financial burden on businesses. Especially, he has successfully protected the weak banks which were facing big difficulties due to the weak liquidity, while forcing banks to experience the banking system restructuring process.
However, he still cannot settle many big problems.

The problems in the year of dragon…
It is nearly impossible to have a reliable database about the operation of the banking system, even though in 2012, the State Bank made public some figures about the credit activities and foreign currency reserves.

Everyone knows that bad debt remains the biggest problem for the Vietnam’s banking system. However, it is still unclear how big the bad debt is. While the State Bank of Vietnam said the bad debt ratio was 8.6 percent, some experts said it could be 13 percent, and some others said 15 percent.

Regarding the measures to settle the bad debts, Governor Binh stated a national asset management company would be set up which would buy back banks’ debts with the money to be raised from bond issuance.

Meanwhile, the government has recently stated that the bad debt settlement would depend on commercial banks, because the state budget does not have money to deal with the debts.

The bank restructuring process has been going very slowly, which has made international observers feel impatient. At the Vietnam Business Forum in 2012, Sanjay Kaira, Chief Representative of IMF in Vietnam warned that any further delay in the bank restructuring would lead to the increases in the provisional debts of the government.

Meanwhile, Fitch Ratings, in its latest report about the Vietnam’s banking outlook, “threw a ladle of cold water” into the achievements gained by Vietnam when saying that the progress in the banking system reform and the establishment of an asset management company remain “unclear.”

…would still cause headaches in 2013

According to Le Trong Nhi, there are two main groups of problems Binh would have to face in 2013, including the 1) banking system restructuring and bad debt settlement, and 2) the relations among inflation, credit growth and gold market management.

The former group comprises of the problems relating to the economic stagnation, while the latter comprises of the problems relating to the economic growth. These are the two tasks which Vietnam will find it difficult to obtain both, and it may have to sacrifice one for another.

Vietnam has been seeing high inflation rates since 2007. Though the inflation rate was lowered to the one digit level in 2012, it may go beyond of the control any time because of some existing problems.

One of the problems is that the interest rates have been slashed too sharply and rapidly, according to IMF. This may trigger a new wave of high inflation in 2013, even though the purchasing power still cannot recover in the year.

The State Bank, while slashing the interest rates six times in 2012 alone, decided to set up a cap on the lending interest rates applied to some business fields only, not all of them. This has raised the doubts that the State Bank did this to protect the groups’ interests.