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Interest rate and exchange rate

Interest rate and exchange rate

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Published by damsana3

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Published by: damsana3 on Aug 26, 2008
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 Interest rate and exchange rate
: Basically these rates have been liberalized. The StateBank only influences the interest rate and exchange rage through the money market andmonetary policy instruments. Therefore, interest rates and exchange rates currentlyreflect more closely the value of Vietnam dong, and follow the development of theinternational and domestic money market. Interest rates were gradually liberalized insequencing and with caution. First of all, the real positive interest rate principle wasintroduced since 1992. Deposit interest rates were liberalized in 1996, and lendinginterest rates were determined through negotiation since June 2002. The foreignexchange rate management was shifted from the fixed multiple exchange rate, withadministrative measures, to the flexible exchange rates that are regulated on the market basis.
II. Banking Reform
1. Beneficiaries of the reform
Focusing on SOCBs and joint-stock commercial banks
2. Objectives of the reform
- Enhance financial capacity and competitiveness- Enhance management, governance, and operation efficiency- Making Vietnamese commercial banks strong enough for regional andinternational integration
3. Reform contents
3.1 For SOCBs- Financial restructuring, includes:+ Re-capitalization to increase statutory capitals, ensuring capital adequacyratios+ Solving NPL’s (Non-Performing Loans), cleaning banks’ balance sheets:(i) Formulating special mechanism to solve NPL’s incurred before 31/12/2000;(ii) Classifying and solving NPLs in consistency with international standards andbestpractices- Re-structuring the organization and operation, including:+ Differentiating between policy lending and commercial lending+ Completing Business Strategy and Credit Manuals+ Establishing specialized departments in charge of risk-management andasset/liabilitymanagement+ Establishing management information systems+ Completing the internal control and internal audit mechanism+ Practicing auditing in consistency with international accounting standards- Formulating the Proposal on SOCBs equitization, primarily focusing on equitizingthe twobanks, VIETCOMBANK and MHB3.2 For joint-stock commercial banks- Increase the capitals to expand business scope:+ Merger and acquisition of small joint-stock commercial banks into bigger joint-stockcommercial banks+ Call on shareholders to increase capitals or issue more shares to call for morecapitals- NPL solutions:+ Provision for risks
12+ Solving security assets (collateral), collecting debts to the end from customer+ Debt re-structuring by: selling off the debts, transforming the debt into equity,re-scheduling the debt, and rolling over3.4.2 Financial re-structuring
Re-capitalizationAs of now, SOCBs’ statutory capitals have been injected with nearly 13.000billion dongs bythe Ministry of Finance from the source of special Government bonds and othersources; increasingSOCB’s total statutory capitals to 17.000 billion dongs, step-by-step raisingequity, significantlyimproving capital adequacy ratio in consistency with international standards(8%). Joint-stock commercial banks have also continuously issued shares to call forequity fromshareholders and the public. Almost all joint-stock commercial banks havereached the capitaladequacy ratio in accordance with the State Bank of Vietnam’s regulations.-Solution of NPL90% of NPLs incurred before 31/12/2000 have been solved by such measures as:collection in cash, solution of security assets (collateral), using provisions forrisks… and theGovernment has also assisted by the State budget. As of now, joint-stockcommercial banks’NPLs are below 5% of the total debt outstanding (by the Vietnamese AccountingStandards).
III. Prospects for the Vietnamese Banking Sector in the comingtime
As of 31/12/2004, Vietnamese commercial banks have basically solved all oldproblems,creating basis to apply stronger measures in the upcoming time, when Vietnam joins the WTO andopens the markets as required under the US-Vietnam Bilateral Trade Agreement.Vietnam needs topush up liberalization of services of the financial and banking sector.In the coming time many foreign banks will be operating in Vietnam with manynew bankingproducts and services. This requires the Vietnamese banking system to furtherreform:+ About policy, legal environment: the Government and the State Bank of Vietnam have to revise,supplement, promulgate new regulations on banking activities, first and foremostregulations onaccounting, debt classification, allocation of provisions against risks, prudentialratios in bankingactivities in consistency with international standards and best practices; ensuringevery entityoperating in Vietnam in the same operation sector has the same rights andresponsibilities, without

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