~ Le Viêt Nam, aujourd'hui. ~
The Vietnam News

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Vietnam outlines banking policies for 2000

HANOI - Vietnam has devised a broad policy framework for the banking sector this year, which includes a commitment to give the market more influence over the dong currency and interest rates. A central bank report obtained by Reuters on Thursday also said it would take several years for Vietnam to restructure the country's dozens of poorly capitalised semi-private financial institutions known as joint stock commercial banks.

In addition, state media reported that the government had set 10 key tasks for the banking sector this year. But most attention in recent months among the banking community has focused on the dong and interest rates, which are both heavily controlled by the state. The report gave no exact timeframe or precise details, but said Hanoi wanted the market to play a bigger role in the setting of both.

``The (central bank) will operate and complete a new mechanism for the exchange rate, limiting intervention by administrative measures,'' said the report. It said such a policy this year aimed to allow the exchange rate to be set more in line with foreign currency supply and demand and other economic factors, including inflation. The daily dong exchange rate with the U.S. dollar is based on the average of interbank transactions from the previous trading day.

But deals can only be executed at a maximum differential of 0.1 percent either side of that rate each day, restricting what could be a gradual trend downward for the local unit, which bankers believe is overvalued by 10-15 percent. On Thursday the dong was set at 14,026 to the dollar. Since late last year there has been speculation Hanoi would widen the 0.1 percent band because there was little pressure on the balance of payments because of solid export growth and slack demand for imports of capital equipment.

The report said Vietnam wanted the market to play a bigger role in setting interest rates this year. Previous comments by officials have given conflicting signals on Hanoi's intention. ``The interest rate mechanism will be reformed to increase the role of the market,'' the report said. Vietnam sets ceilings on loan rates, a policy donors say results in the inefficient allocation of credit and squeezes foreign banks out of the market because caps on dong lending are too low.

More independence for commercial banks

The report added that a proposal to consolidate the country's four state-owned commercial banks, which account for 80 percent of lending, had been submitted to the government. It gave no details. These four state-run banks had also been given formal approval to set up specialist debt workout units in a bid to try to reduce their overdue loans. Such units would package bad debts and try to recover mortgaged assets.

A selection of the 10 key tasks for the banking industry this year, outlined in official media, are as follows:
  • Establish an experimental policy bank (which would lend primarily under government direction)
  • Develop the interbank market
  • Give commercial banks more independence
  • Begin operating a bank deposit insurance company
  • Open a national Asset Management Company, which will buy bad bank debts and try to dispose of mortgaged assets
  • Increase foreign reserves
  • Improve bank inspection and internal supervision
Reuters - January 13, 2000.