Governor Nguyen Thi Hong said that at the end of last year, even though she didn't want to, she still had to accept high interest rates and not loosen the "room" to prioritize system safety.
According to the Government's report, the average new lending interest rate is 9.3%, but data from the National Financial Supervisory Commission shows that the average lending interest rate at 35 commercial banks by the end of March was about 10.23%, 0.56 percentage points higher than at the end of 2022.
At the socio-economic discussion session on the morning of June 1, Mr. Nguyen Anh Tri said that high and prolonged interest rates are causing capital flow to be blocked for businesses. "Banks should understand, share, and be responsible for businesses and people," he said.
In previous discussions, many other delegates also said that interest rates have remained high since the end of last year, decreased slightly at the beginning of this year but are still at a high level compared to the tolerance of businesses.
Explaining to the National Assembly, Governor Nguyen Thi Hong said that not only businesses but also the agency wanted to reduce interest rates. However, the reduction must be placed in the context of macroeconomic stability, currency and banking system safety.
Ms. Hong cited two reasons why the economy was forced to accept high interest rates in the last months of 2022. One was the pressure when international interest rates increased rapidly and strongly. Domestically, average inflation increased by 3.15% and core inflation averaged about 5%, much higher than the 1.84% and 0.84% levels in 2021.
"Inflation increased rapidly every month in the second half of last year, so monetary management cannot be subjective," she said.
The second pressure is the depreciation of the VND when countries tighten monetary policy and the USD increases in value. In the last three months of last year, the VND faced pressure to depreciate by 9-10%, so at that time, if there were no flexible and synchronous solutions, it would be difficult to stabilize the exchange rate," Ms. Hong said.
If the dong depreciates by more than 10%, according to the Governor, it will cause difficulties for businesses because domestic production depends heavily on imported raw materials, leading to a large foreign currency deficit. Not to mention, domestic businesses borrow large amounts of foreign capital, and when the dong depreciates, it will increase debt repayment obligations.
State Bank Governor Nguyen Thi Hong explains at the socio-economic discussion session on June 1. Photo: Hoang Phong
Similarly, the management agency could not loosen the credit room in October 2022 because the market at that time had a mass withdrawal incident at SCB Bank, which was unprecedented and had a great risk of spreading to other banks in the system.
When liquidity stabilizes, the authorities will adjust the credit limit. "The solutions, policy dosage, and timing have been considered by the management agency to ensure system safety and create a business environment for businesses and people," Ms. Hong said.
In the first four months of 2023, the exchange rate stabilized again, inflation increased slowly, so the State Bank adjusted the operating interest rate three times. This move helped the interest rate level of new loans decrease by an average of 0.9% per year compared to the end of 2021.
Regarding credit, the first five months of this year saw a low growth of only 3%. But Governor Nguyen Thi Hong said it was not due to policy, but because businesses did not meet lending conditions. "Currently, credit room for credit institutions is comfortable, the system has excess liquidity, there is no reason why banks mobilize deposits and pay interest to depositors but do not lend," she said.
The Governor analyzed and classified business groups, showing that there are businesses that do not have output or orders, so they do not need to borrow. At the same time, many small and medium-sized enterprises are facing difficulties after the pandemic, do not meet the conditions, and cannot access capital.
With real estate, credit growth is higher than the general level of the economy, but 70% of the current market difficulties are legal, so we should focus on solving them.
"We have directed banks to reduce administrative procedures, lend based on feasible solutions, and do not necessarily require collateral to lend," said Ms. Hong, adding that along with debt exemption and extension, this solution will help improve access to credit.
In previous discussions, delegates pointed out that the reason for high interest rates was due to the application of inflation control measures but the impact was not carefully assessed and credit targets were adjusted too slowly.
According to Ms. Dieu Huynh Sang, Deputy Head of the Binh Phuoc Provincial Delegation, the backlog of public investment capital deposited at the State Bank, commercial banks, and the low increase in total means of payment, low inflation, and high interest rates are paradoxes that show the inadequacies in the management of fiscal and monetary policies.
Mr. Nguyen Quoc Han, Deputy Head of the Ca Mau delegation, also said that accessing cash flow for businesses is not easy because banks are concerned about risks. He suggested that the banking sector have solutions to unlock capital for production and business entities.
In this aspect, Ms. To Ai Vang, Deputy Head of the Soc Trang Provincial Delegation, recommended that the State Bank should manage credit more flexibly, by assigning total credit room from the beginning of the year to banks and operating on the basis of a plan established by agreement between banks and customers.
"Monetary management needs to avoid a situation where the first half of the year accelerates, and the room runs out or is suddenly tightened at the end of the year, causing businesses to break their investment, production, and business plans," Ms. Ai Vang noted.
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