Deputy Director of the Banking Strategy Institute Pham Xuan Hoe noted that the most visible achievement in the past five years is that the monetary policy has played an important role in curbing inflation and stabilising the macro-economy. — Photo songmoi.vn

HA NOI (VNS) — Improved monetary policies in the past five years have helped increase the trust of people in the banking system, a conference heard yesterday.

At the conference on the management and regulation of monetary policies from 2011 to 2015, and its effects on the economy, held in Ha Noi yesterday, participants said that for the past five years, the monetary, fiscal and other economic policies have contributed in controlling inflation, stabilising the macro-economy, supporting economic growth and ensuring the safety of the banking system.

Deputy Director of the Banking Strategy Institute Pham Xuan Hoe noted that the most visible achievement in the past five years is that the monetary policy has played an important role in curbing inflation and stabilising the macro-economy.

Hoe said that the banking industry has also gained with the stability achieved in the ... foreign exchange and gold markets as well as successfully fighting against the use of gold and the US dollar in daily transactions in the local economy.

Rector of the National Economics University Tran Tho Dat said that Viet Nam's economy has faced many difficulties and challenges, which have caused volatility in the macro-economy, high inflation, low economic growth, and a decreasing stock market, apart from a frozen real estate market.

During those years, the banking system was unsafe with many credit institutions suffering poor liquidity, weak governance and accelerating non-performing loans (NPLs).

The foreign exchange market was also very volatile while the government's foreign exchange reserves remained low.

To remove these shortcomings, the banking system has undergone strong restructuring for the past five years which has helped it register major achievements.

According to Deputy Chairman of the National Financial Supervisory Commission Truong Van Phuoc, from 2012 till now, the entire banking system has handled roughly more than VND458 trillion (US$20.35 billion) of NPLs, 45 per cent of which were handled via the Vietnam Asset Management Company (VAMC). It has helped reduce the bad debt ratio of the entire banking system from 17 per cent in late 2011 to 2.91 per cent in October 2015.

However, Phuoc said, the central bank would have to continuously issue new policies to help the VAMC handle the bad debts that it had bought from credit institutions. Phuoc also expected the debt would be handled soon thanks to the warming real estate market as most of the VAMC's bad debts are mortgaged by real estate assets. For the past five years, the central bank has also succeeded in restructuring ailing banks through mergers and acquisitions, which has helped the banking system avoid a domino-like collapse.

Thanks to the restructuring of the banking system, the lending interest rate has also been cut by half from 20 per cent per year in late 2011 to between 9 per cent and 11 per cent this year for ordinary loans and 6.5 per cent for prioritised loans.

The interest rate reduction, which is equal to that in 2005 and 2006 when the economic growth was stable, has contributed significantly to cut input costs for businesses. Despite the achievements, the banking industry is still faced with major challenges, Hoe said.

He said that as the credit growth is roughly between 15 per cent and 17 per cent yearly, the central bank will have to closely supervise the quality of loans to avoid rising bad debts. Besides, he said, the regulation of domestic monetary policies would also face major challenges as policies announced by central banks of major countries worldwide would impact Viet Nam's financial system.

It is also difficult for the central bank to implement regulations as the country is deeply integrating into the world's economy while the financial status as well as asset quality and governance of local banks remain restricted, Hoe said.

Banking economist Can Van Luc suggested that the central bank should regulate monetary policies actively and flexibly, and reduce administrative measures to make it more effective. — VNS