Vu Viet Ngoan, Chairman of the National Finance Supervision Committee (NFSC), recommended the State Bank of Vietnam (SBV) should inject cash to support liquidity for local banks, the local online newspaper Dantri.com.vn reported.
Given that local businesses currently face much difficulty and inflation is expected to slip to below 10% this year, interest rate cut is a practical move, Ngoan said, emphasizing that in order to lower interest rates further, it is essential to deal with liquidity squeeze first.
Bank liquidity crunch firstly sourced from the misbalance between sources and uses of funds. Loan-to-deposit ratio of the banking system is too high and increasing sharply [from 0.95 in 2008 to 1.01 in 2009 and 2010], Ngoan said. [Last year, the central bank pursued tight monetary policy, yet the ratio climbed to 1.02-1.03]. Besides, rising bad debts worsened the liquidity problem at banks, Ngoan said.
The central bank can support capital, liquidity, available funds for banks, Ngoan said, adding that as long as liquidity injection does not expand credits, i.e. not for investments or consumption, it will not increase inflation.
The NFSC Chairman identified three major challenges for the local economy in 2012.
Firstly, local firms are in much difficulty as a consequence of the country’s tight monetary and fiscal policies.
Secondly, along with a large number of troubled companies, the real estate market halted, the stock market became gloomy. As a result, the domestic banking system was also negatively affected. Local banks presently face both liquidity and bad debt problems.
Lastly, unfavorable global economic condition can adversely influence Vietnam’s export activity as well as reduce foreign investments into the country.
Yet, the country has achieved positive results in stabilizing the macro-economy and curbing inflation last year, Ngoan said, citing easing inflation, narrower trade deficit, relatively stable foreign exchange and gold markets.
NFSC Chairman Suggests Injecting Cash to Help Improve Bank Liquidity; Lower Interest Rates
Vu Viet Ngoan, Chairman of the National Finance Supervision Committee (NFSC), recommended the State Bank of Vietnam (SBV) should inject cash to support liquidity for local banks, the local online newspaper Dantri.com.vn reported.
Given that local businesses currently face much difficulty and inflation is expected to slip to below 10% this year, interest rate cut is a practical move, Ngoan said, emphasizing that in order to lower interest rates further, it is essential to deal with liquidity squeeze first.
Bank liquidity crunch firstly sourced from the misbalance between sources and uses of funds. Loan-to-deposit ratio of the banking system is too high and increasing sharply [from 0.95 in 2008 to 1.01 in 2009 and 2010], Ngoan said. [Last year, the central bank pursued tight monetary policy, yet the ratio climbed to 1.02-1.03]. Besides, rising bad debts worsened the liquidity problem at banks, Ngoan said.
The central bank can support capital, liquidity, available funds for banks, Ngoan said, adding that as long as liquidity injection does not expand credits, i.e. not for investments or consumption, it will not increase inflation.
The NFSC Chairman identified three major challenges for the local economy in 2012.
Firstly, local firms are in much difficulty as a consequence of the country’s tight monetary and fiscal policies.
Secondly, along with a large number of troubled companies, the real estate market halted, the stock market became gloomy. As a result, the domestic banking system was also negatively affected. Local banks presently face both liquidity and bad debt problems.
Lastly, unfavorable global economic condition can adversely influence Vietnam’s export activity as well as reduce foreign investments into the country.
Yet, the country has achieved positive results in stabilizing the macro-economy and curbing inflation last year, Ngoan said, citing easing inflation, narrower trade deficit, relatively stable foreign exchange and gold markets.
Source Sophie/ StoxPlus
