The National Assembly's Economic Committee said that the State Bank's management at the end of last year still had many shortcomings, slowing credit growth, but Governor Nguyen Thi Hong explained that at that time, it was forced to prioritize liquidity.
On October 16, the National Assembly Standing Committee discussed the socio-economic situation for 2023-2024 and the five-year period (2021-2025). The inspection report of the Standing Committee of the Economic Committee stated that over-emphasis on inflation control was the cause of high interest rates. The slow adjustment of credit growth at the end of 2022 and the beginning of this year was one of the shortcomings in monetary policy management.
In response to this opinion, Governor Nguyen Thi Hong said that the above comment is only viewed from an individual perspective, while the monetary policy management of this agency closely follows the requirements of the National Assembly and is based on the overall economic situation. That is, it is necessary to reduce interest rates, ensure stability of currency, foreign exchange and banking system operations.
Ms. Hong analyzed that the operating interest rate was kept unchanged by the State Bank when many forecasts showed that the whole year's inflation was controlled according to the target assigned by the National Assembly (below 4%). However, in October, when the mass withdrawal of money from Saigon Bank (SCB) occurred, the State Bank was forced to prioritize ensuring safety and preventing the risk of a banking system collapse.
"At that time, some banks were short of required reserves, and there was a risk of insolvency. The foreign exchange situation was also very tense, with the exchange rate increasing by 10% at times," the Governor informed, adding that the State Bank had to simultaneously implement three measures to stabilize the foreign exchange market, including foreign exchange intervention, increasing the operating interest rate in September and October 2022, and not adjusting credit.
"The fact that the State Bank did not adjust credit growth at that time was to meet people's payment requirements and ensure system liquidity," Ms. Hong said. In early December, when system liquidity improved, the State Bank adjusted the credit target, with a target of 14-15% growth in 2023.
State Bank Governor Nguyen Thi Hong explains at the Standing Committee meeting discussing socio-economic issues on October 16. Photo: Hoang Phong
Similarly, the Governor of the State Bank also said that the comment "low inflation and high interest rates are paradoxical, reflecting inadequacies in fiscal and monetary policy management" stated in the review report of the New Economic Committee only assessed the interest rate and inflation aspects, and did not cover the overall situation.
According to her, in managing monetary policy, we cannot be subjective about inflation, and we need to look at long-term trends. For example, the US Federal Reserve (Fed) always relies on inflation indicators to decide whether to increase interest rates or not.
She informed that inflation has been on an upward trend since July, while core inflation in the first nine months of the year increased by 4.49%, according to data from the statistics agency. According to the Governor, this is an indication that needs to be noted in the management of monetary policy in the coming time.
According to the 5-year socio-economic review report (2021-2025), the Economic Committee assessed that credit growth is low and bad debt is high due to the weak capital absorption capacity of enterprises and the economy. In 2023, outstanding credit as of September 21 increased by only 5.9%, half of the same period in 2022 (10.83%).
The State Bank's report shows that credit increased by nearly 7% by the end of September, about half of the year's credit growth target (14-15%). However, Ms. Hong expects that with many solutions to stimulate domestic consumption and find new export markets, credit will increase by the end of the year.
"Risks in the banking system are increasingly closely linked to risks in non-bank financial institutions, the stock market and real estate. Bad debt still poses many risks to the safety and operational efficiency of credit institutions," the report stated, and suggested that the Government speed up the handling of weak banks, which has been delayed in the past.
Governor Nguyen Thi Hong said that dealing with weak banks is difficult and takes time. Since the beginning of the Government's term, the Prime Minister has directed very drastic handling. The State Bank has submitted a proposal to competent authorities for approval of the policy on dealing with weak banks.
Previously, according to the Government's report to the National Assembly on the implementation of the resolution on questioning and supervision from the beginning of the term, the competent authority approved the policy of compulsory transfer with 4 banks under special control, including Construction Bank (CBBank), Ocean Bank (OceanBank), Global Petroleum Bank (GP Bank) and DongA Bank (DongABank).
As for SCB - a bank that has been placed under special control since October 2022, the State Bank is currently looking for investors to participate in restructuring SCB, to submit to the Government for consideration and decision on the restructuring policy of this bank according to regulations.
"The restructuring and handling of weak banks is in the final stages," Governor Nguyen Thi Hong added.
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