1.

Model of the State Bank of Vietnam

The State Bank of Vietnam follows the central bank model under the Government.

*Advantages of the above model:

- Helping the government to unify and synchronize macro policies, including monetary
policy of banks, to achieve the common socio-economic objectives.

-Make sure the regular supervision of the government and promptly intervene to ensure
the harmonization of benefits, limit the "abuse" of their roles, positions and lack of
cooperation with the government.

-Help the government take into account the stable and concentrated financial resources of
the economy in order to realize the goals that the government has set forth.

*Defect:

-The government's excessive interference with the central bank.

-Money issuing activities may be abused to offset the state budget deficit.

*Some legal regimes on the operation of the State Bank:

-Develop a project and organize the implementation of national monetary policy.

-Operating to issue money

-Bank credit operations

-Operation to open an account, provide payment services and funds

- Foreign exchange operations and foreign exchange management

-Inspection, supervision and handling of violations in the field of currency and banking
operations

-Other SBV activities ..

2. The function of the State Bank of Vietnam

*Government ‘s bank:

The central bank operates as the government’s banker, not only because it is more
convenient and economical to the government, but also because of the intimate
connection between public finance monetary affairs. It floats public loans and manages
 the public debts on behalf of the government. It keeps the banking accounts and balances
of the government after making disbursements and remittances. As an adviser to the
government it advises the government on all monetary and economic matters. The central
bank also acts as an agent to the government where general exchange control is in force.

*Lender of Last Resort to Commercial banks:

If banks get into liquidity shortages then the Central Bank is able to lend the commercial
bank sufficient funds to avoid the bank running short. This is a very important function as
it helps maintain confidence in the banking system. If a bank ran out of money, people
would lose confidence and want to withdraw their money from the bank. Having a lender
of last resort means that we don’t expect a liquidity crisis with our banks, therefore people
have high confidence in keeping our savings in banks.

*Issue of Currency:

The central bank is given the sole monopoly of issuing currency in order to secure control
over volume of currency and credit. These notes circulate throughout the country as legal
tender money , as well as destroy them which are not in circulation. It has to keep a
reserve in the form of gold and foreign securities as per statutory rules against the notes
issued by it.

In Viet Nam , In particular, the polymer money has par value of VND 500,000, VND
200,000, VND 100,000, VND 50,000, VND 20,000, VND 10,000 and banknotes with par
value of VND 5,000, VND 2,000, VND 1,000 and VND 500. guarantee for split of par
value in payment.

*Monetary Policy:

With the main objectives such as price stability, exchange rate stability, interest rate
stability, financial market stability, economic growth, reducing unemployment rate.
Central banks generally use three main tools of monetary control: (1) open-market
operations.(2) the interest rate and (3) reserve requirements for commercial banks. Open-
market operations describe the process of buying and selling government bonds in the
open market. Meanwhile, the interest rate and reserve requirements define the conditions
at which commercial banks are able to borrow money from the central banks.

3. Monetary policy of the State Bank of Vietnam in 2017

Accordingly, SBV said that it would pursue a proactive and flexible monetary policy next
year to stabilize the rates of interest and foreign exchange. The monetary policy will also
be in close conjunction with fiscal and other macro-economic policies in a move to
control inflation and support economic growth at a reasonable level. After buying more
 than US$40 billion of foreign reserves to date this year - a record high in recent years, the
SBV affirmed that it would continuously try to increase the country’s foreign reserves
besides supporting efforts to stabilize the forex market in 2017. Measures will be also
taken to stabilize the money market and ensure the liquidity of the banking system,
according to the central bank. As for interest rate, the central bank targets a stable rate as
in 2016. They take measures to control credit growth target for 2017 to ensure the lending
is safe and effective. Lending in foreign currencies will continue in 2017, as per a recently
issued circular, SBV said that it would strictly control such kind of lending to ensure the
country’s de-dollarisation policy. The central bank had been regulating the exchange rate
with a more flexible and market-based methodology this year, setting the reference rate
every day and letting commercial banks trade the dollar at +/-3 percent on either side of
the rate.

It affirmed that no sudden rise in the demand and supply for the dollar had been reported
in the local forex market over the period. Liquidity in the banking system remains strong,
helping banks meet dollar demand of institutions and individuals in a timely manner.

4. The results of SBV’s monetary policy in 2017

On the basis of macroeconomic and monetary movements, from the beginning of 2017,
the State Bank of Vietnam (SBV) continued to manage the monetary policy in a proactive
and flexible manner in combination with fiscal and other macroeconomic policies in order
to achieve many positive results:

Results of monetary policy management:

The SBV managed synchronously and proactively monetary policy instruments in order
to control money supply targets in accordance with the management objectives. By
September 20, 2017, the total liquidity (M2) increased by 9.59% as compared to the end
of 2016 (rose by YoY of 15.36%), thereby supporting to curb inflation at low level,
ensuring to control CPI in the context that prices of several state-managed goodswere
adjusted. Liquidity of credit institutions was ensured, surplus was at the reasonable level
to support credit growth at the beginning of the year, thereby contributing to stabilizing
the mobilizing interest rates, lowering lending interest rates, concurrently supporting
Ministry of Finance to issue Government bonds with long-terms and low interest rates.

Interest rate movements:

The interest rates were commonly kept stable and decreased despite of the increasing
pressure in the six first months of 2017; from July 10, 2017, in order to decrease the
operational expenses of enterprises, contributing to enhancing economic growth under
Government’s orientation, on the basis of prudently assess that the inflation movements
has the slight increasing trend and capacity of controlling the target of 4% set by the NA,
and the banking operation has achieved positive performance, the SBV reduced by 0.5%
p.a for maximum short-term loans applied for priority fields, depreciated by 0.25% p.a on
all the managed interest rates of the SBV, issuing documents to direct credit institutions to
continue proactively implementing measures to save costs, improving operational
efficiency to facilitate the reduction of lending interest rates for priority fields. As a result
of the synchronous implementation of the above solutions, credit institutions have actively
carried out Government’s and the SBV policies reduced the short-term lending interest rate
by 0.5% p.a for priority fields.

In addition, credit institutions also positively decreased the interest rates for business and
production by around 0.5-1% p.a, depreciated the mid-term and long-term lending interest
rates for priority fields to 8% p.a (from 9-10.5% p.a previously), implemented diversified
packages of short, mid and long terms with preferential interest rates for necessary sectors
in economic development and social security; The lending rate for short-term loans was 4-
5% p.a, applicable to those customers who have good loan-repayment track records, as
well as transparent finances.

Concurrently, credit institutions continued saving expenses to reduce lending interest

rates, supporting enterprises under the direction of the Prime Minister and the SBV.

Currently, the average of lending interest rates for priority fields were 6-6.5% p.a for
short-term loans, 8-10.5%p.a for mid and long term loans; The rates for production and
business were commonly 6.8% - 9.0% p.a for short-terms, and 9.3% – 11.0% p.a for
medium- and long-term ordinary loans.

The graph illustrates the Interest Rate in Viet Nam during the 2010-2018 period

Exchange rate results:

The central rate continued to be managed in a flexible manner in accordance with market
movements and monetary policy targets; proactively collaborating with proper liquidity
adjustment of VND, closely monitoring movement of market liquidity and forex status of
the system to adjust the appropriate central rate at the right time, thereby contributing to
stabilize the foreign exchange market and rate in line with the set targets. Foreign
currency liquidity is improved, the legal demand of individuals and organizations were
met promptly and adequately. The SBV bought foreign currencies from credit institutions
to raise the state international reserves; the exchange rates were relatively stable in
comparison with the end of 2016.

On credit:

Based on the orientation of credit growth for the whole year, SBV has announced the
targets for credit institutions and considered adjustments in line with the performance of
credit institutions; directed CIs to focus on credit disbursements in production fields,
prioritized industries, and tight control of credit for potentially high risk areas. SBV also
instructed credit institutions to concentrate resources, balance capital sources to strongly
implement preferential credit programs for some priority sectors, especially in rural areas,
high-tech agriculture...

Credit to the economy has been increasing since the beginning of 2017 and steadily
moving up over the months. As of September 20th, 2017, credit increased by 11.02% as
compared to the end of 2016 - a high growth as compared to recent years (such as 10.46%
increased for the same period in 2016 and 10.78% for the same period in 2015). The
credit structure focused mainly on production and business areas, in which credit for some
key economic sectors and prioritized sectors was growing higher than the overall growth
rate of the whole system.

Lending to all priority sectors increased as compared to the end of 2016. Specifically, as
of August 2017, credit for agriculture and rural development reached VND 1,222,267
billion, up by 17% as compared to the end of 2016, accounting for about 20.2% of total
outstanding loans of the economy; Credit for the four remaining prioritized sectors (by the
end of August 2017): Credit for export reached VND 207,001 billion, up by 8.14%;
Credit for high tech enterprises reached VND 35,012 billion, up by 25.12%; Credit for
Industrial development were VND 153,837 billion, increased by 18.9%; Credit for small
and medium enterprises reached VND 1,292,182 billion, up by 7.49%.

Restructuring:

Restructuring in the first nine months of 2017 continued to be strengthened and

implemented thoroughly and comprehensively by SBV, which focuses on 02 contents
including: (1) to formulate and implement the National Assembly Resolution on piloting
Non-Performing Loan and the Scheme on "Restructuring the system of CIs associated
with NPL Resolution for 2016-2020 period"; (2) to restructure weak CIs.

Since the issuance of Resolution No.42/2017/QH14, the Vietnam Asset Management

Company (VAMC) has resolutely carried out many measures to implement the contents
of NPL Resolution. Debt purchase by special bonds: From January 1st, 2017 to
September 15th, 2017, VAMC has purchased debts of 14 credit institutions with the total
outstanding loans in the balance sheet of VND 20,995 billion, the purchasing price of debt
was VND 20,619 billion, has met the target of 2017 assigned by the State Bank of
Vietnam. Thus, from 2013 to September 15th, 2017, VAMC purchased 26,108 debts from
16,197 customers at 42 credit institutions, with the total outstanding balance of VND
296,550 billion, the purchasing price of debt was VND 266,543 billion.

In payment activities:

The share of cash on total liquidity in the economy tended to decrease, from 19.02% in
2005 to 14.02% in 2010 and to 11.49% as of December 31st, 2016; The perceptions and
habits of using cash in payment have changed positively in the direction that more and
more people choose non-cash payment instead of cash payment.Vietnam's current
payment infrastructure has basically met and promoted non-cash payment and payment
via card.

Bank cards continue to grow; the number of cards issued, as well as the number and value
of card transactions continue to grow steadily. As of June 2017, the number of issued
cards reached 121.5 million cards. Commercial banks have integrated many features of
payment application of bank cards using payment of electricity, water,
telecommunications fees, insurance, transportation fees, and online payment. Commercial
banks are always interested in improving the quality of card services, focusing on
increasing the security aspects of bank cards.

At the moment, there are over 76 payment service providers implementing Internet
payment services and 39 providers providing payment services via mobile phones. The
State Bank of Vietnam (SBV) has directed the growth of card payment via POS to
increase the value and the volume of POS transactions, contributing to the promotion of
retail trade.

Nguồn: http://bit.ly/sbvreport

tradingeconomics.com