Rising to the challenge

an Ha

The headquarters of the State Bank of Vietnam in Hanoi

The banking industry successfully fulfilled its tasks in 2021, yet many challenges remain ahead.

Looking back over the past year, the banking industry had faced many difficulties and challenges in operating monetary policy given the unpredictable fluctuations of the world’s economy. Businesses and people were severely affected by the Covid-19 pandemic. The banking system had taken drastic actions, implementing tasks right from the beginning of the year, upholding its role as the lifeblood of the economy.

In 2021, the State Bank of Vietnam (SBV) comprehensively managed the monetary tools to regulate the liquidity appropriately; the money market has been stable; the inter-bank interest rates have been remained at low levels, supporting the credit institutions to reduce their capital costs, thereby allowing them to cut down their lending interest rates. Credit continued to focus on production, priority areas and policy credit programs. The SBV strictly controlled credit in potentially risky areas, implementing effective credit policy programs.

The SBV also coordinated closely with the relevant ministries and state agencies to manage the monetary policies, the commodity and service prices; made forecasts of the inflation to control it. Thanks to those measures, the inflation in 2021 was controlled at a level that is lower than the target of 4 percent as set by the National Assembly and the Government; the average inflation was about 2 percent, the lowest level since 2016. The core inflation was also at a low level, contributing to maintaining the macro-economic stability, strengthening public confidence, and FDI attraction.

In addition, the State Bank flexibly adjusted the credit growth limits for credit institutions, ensuring sound credit expansion. with the SBV's uniform instructions and solutions, although negatively affected by the Covid-19 pandemic, the credit of the whole economy increased and was higher than the same period of the previous year. Total outstanding loans of the economy reached about VND10.38 quadrillion (USD457 billion), up 12.97 percent compared to the end of 2020 (total mobilized capital of the economy reached about VND11.23 quadrillion (USD495 billion), up 8.44 percent); 4 out of 5 priority areas had a higher growth rate than the credit growth of the economy.

In the year, the SBV continued to maintain the policy rate at a low level, creating favorable conditions for credit institutions to access low-cost capital from the SBV which allowed them to further cut lending interest rates. The State Bank requested the credit institutions to cut expenses, adjust business plans and profit targets in order to focus on reducing their lending interest rates for the existing

The State Bank of Vietnam holds a conference on dissemination of banking tasks for 2022

and new borrowers. Commercial banks with a large market share committed to continue reducing lending rates. The total amount of interest that credit institutions exempted, reduced for customers amounted to VND34.9 trillion (USD1.6 billion). According to the advocacy of the Vietnam Banks Association, 16 credit institutions implemented programs on reducing lending rates and service fees for customers affected by the Covid-19 pandemic. Between 15 July and 30 November 2021, the credit institutions reduced their interest by VND18,095 billion (USD797 million).

In 2021, the SBV continued to closely monitor the credit institutions' implementation of the approved restructuring schemes, reviewing and making appropriate adjustments in line with the practical situations, and addressing any arising constraints and obstacles promptly; warning and removing difficulties during the implementation by the credit institutions. The SBV also issued many action plans and programs, improved the legal frameworks to enhance the digital transformation in the banking sector.

In her concluding remarks at the Conference on banking tasks 2022, the Governor of the State Bank Mrs. Nguyen Thi Hong requested the entire banking sector to thoroughly grasp the orientations, objectives of controlling the inflation, maintaining the macroeconomic stability, supporting the economic recovery and development, managing the monetary policies in a proactive and flexible manner in association with the fiscal policies and other macro policies, improving the resilience to any economic fluctuations in the international and domestic markets; thoroughly grasp the policy of expanding credit while ensuring the credit safety and security, focusing all available resources on production and business operations, and controlling credit in potentially risky areas; effectively implementing the restructuring of the credit institutions in association with bad debt handling; promoting the digital transformation, contributing to realizing the policy of developing a digital economy and a digital society.

In 2022, the State Bank of Vietnam plans to increase credit by about 14 percent, with adjustments in line with the actual situation; control credit with a focus on production and business fields, priority areas according to the Government's policy; strictly control credit in potential risk areas. The banking industry continues to implement synchronous solutions to ease difficulties for people and businesses affected by the Covid-19 pandemic and natural disasters; continue to effectively implement the restructuring of the credit institutions system; improve financial capacity, governance capacity, and transparency under international standards; enhance international competitiveness.