SBV denies plan to issue compulsory bonds

VietNamNet Bridge – The State Bank of Vietnam has affirmed that it does not have a plan to issue compulsory bonds to withdraw cash from circulation as it has been rumoured.

Director of the Monetary Policy Department under the State Bank of Vietnam Nguyen Ngoc Bao told Thoi bao Kinh te Vietnam that this is just a rumour and that the central bank has no intention to issue any such bonds.

“The State Bank of Vietnam is following a flexible monetary policy with clear orientations for every period. All the new policies and adjustments will be made public to ensure the transparency in information exposure,” Bao said.

The rumour might have come from the recent information that the State Bank of Vietnam will tighten control over credit growth in the last six months of the year.

Local newspapers recently have reported that the central bank is considering taking necessary measures to prevent inflation from returning. The information may have led to the belief that the central bank might try to withdraw cash from circulation by compulsory bonds, which is what it did in 2008 to reduce the cash volume in circulation.

The bank has also lowered the targeted credit growth rate to 25-27 percent instead of the previously set 30 percent.

In fact, in its recent instructions, the State Bank of Vietnam has asked credit institutions to push up mobilising capital and expanding credit to support the national economy, while focusing on funding projects on production and business expansion.

Regarding concrete policies, the central bank has recently released a decision allowing commercial banks to use Government bonds in foreign currencies as collateral for VND loans, giving banks more opportunities to access capital sources. The State Bank has also promised to give capital support to commercial banks, if necessary, through the open market.

In 2008, the State Bank on March 17 issued 20,300 billion dong worth of compulsory bonds (the compulsory buyers were commercial banks) in order to withdraw cash from circulation (the high volume of cash in circulation was then considered the main reason behind the high inflation). However, experts say that the circumstances in 2008 were far different from the current situation and that such a bond issuance does not need to be repeated presently.

Commenting about the newly set credit growth rate of 25-27 percent, some experts say this is a ‘reasonable limit’, but it is not very important.

A finance expert said that it is not really necessary now to set a fixed rate for credit growth.

“I understand that the central bank is setting the limit in anticipation of inflation returning. However, credit growth is just one factor. I think it is more important for the central bank to direct where the credit goes and how the capital is used,” he said.

Agreeing on this, Secretary General of the Vietnam Banking Association said that the 30 percent credit growth rate should not be considered ‘hot’. The thing that banks need to pay attention to now is capital use efficiency, while they should not inject too much money in stocks and real estate.

General Director of Viet Nam Thuong Tin Bank Cao Van Duc, on one hand, said that the targeted 25-27 percent credit growth rate proves to be suitable to the current conditions of the national economy. However, it is also necessary to pay attention to the method that helps obtain the goals.

Duc also said that it is unreasonable to set the same targeted credit growth rate of 25-27 percent to all banks. He believes that it would be better to apply different credit limits to different banks based on their specific circumstances.

Meanwhile, some bankers said that credit would not grow rapidly in the last months of the year even if no credit limit were set. A lot of banks have nearly fulfilled the yearly credit growth rates (fulfilling 70-90 percent), which means that they are not under pressure to push up lending. Moreover, it is not easy to mobilise capital for lending.

VietNamNet/TBKTVN