Directive 04/CT-NHNN on monetary policies and banking operations in the last months of 2016

THE STATE BANK OF VIETNAM

Directive No. 04/CT-NHNN dated May 27, 2016 of the State Bank of Vietnamon a number of solutions for management of monetary policies and banking operations in the last months of 2016

With a view to implement the direction of the Government in Resolution No. 01/NQ-CP dated January 7, 2016 on primary duties and solutions for management of implementation of the socio-economic development plan and State budget estimates in 2016, the banking sector has initiated actively lots of solutions for management.In the first 5 months of the year, banking operations have achieved positive results. The money market has remained stable; the liquidity has been guaranteed, the average lending rates have remained relatively stable; exchange rates have decreased; the forex market liquidity has been high; the State forex reserves has increased; the process of restructuring and settlement of bad debts has been initiated comprehensively; and the safe operation of the system of credit institutions has been guaranteed. Despite the positive results, macroeconomics has arisen several issues subject to concerns as follows: Inflation has tended to rise; the economy has grown less than the same period of last year; the credit has grown from the early beginning of the year, but the mid- and long-term and lending to real estate business has tended to increase, creating pressure on interest rates; exchange rates and the forex market has continued to be affected by unpredictable changes of the world economy.

In order to realize the Objectives of the Government s Resolution No. 01/NQ-CP dated July 1, 2016, Resolution No. 33/NQ-CP dated May 9, 2016, and Resolution No. 35/NQ-CP dated May 16, 2016, in the last months of 2016, the State Bank has pursued consistently the Objectives set out in Directive No. 01/CT-NHNN dated February 23, 2016 implementing solutions for solving difficulties encountered by enterprises in production and business activities, but the State Bank has been not subjective to the development of inflation. The Governor of the State Bank requests the affiliates of the State Bank and credit institutions and branches of foreign banks (hereinafter referred to as credit institutions) to concentrate on implementing the following solutions:

1.Keep implementing comprehensive and effective solutions for management of monetary policies and banking operations defined in Directive No. 01/CT-NHNN dated February 23, 2016, Directive No. 02/CT-NHNN dated February 23, 2016 of the Governor of the State Bank and other relevant documents.

2.For affiliates at the head office of the State Bank:

a) Follow closely development of macroeconomics, monetary and banking operations to manage monetary policy tools comprehensively and flexibly; mainly regulate open market operations, refinance with reasonable terms, amount and interest rates to support the liquidity and capital to credit institutions provided taking account of ensuring the Objective for inflation control.

b) Strictly monitor and control the credit growth of the entire system as well as individual credit institutions; and take strict measures to handle violations of credit institutions against credit growth targets as notified by the State Bank.

c) Concentrate on manufacturing sectors, especially the field of agriculture and rural development, export, supporting industries, small- and medium-sized enterprises, high-tech enterprises, and startup enterprises. Closely monitor and give warning to credit institutions having the scale and pace of credit growth in some sectors posing potential risks, namely, medium- and long-term credits, credits granted to the group of big customers, credits granted in the field of investment, real estate business, and credits granted to BOT or BT traffic projects.

d) Review documents to edit and improve of the legal framework pertaining to loans of credit institutions granted to customers in accordance with relevant law provisions and the actual operations of credit institutions; create favorable condition for enterprises and individuals to access bank credit which serve effective production and business.

dd) Continue to publish daily central exchange rates in conformity with the Objective of management of monetary policy, implement solutions for stabilizing the exchange rates and the forex market in line with Objective of management of macroeconomics and monetary policy.

e) Continue to initiate comprehensively solutions for effective management of forex market in conformity with development of macroeconomics, currency and the Objective of tackling dollarization by the Government.

g) Complete the formulation program of legal documents on schedule and quality assurance; research to promulgate mechanisms and policies to facilitate development, expand access to banking services by individuals and enterprises.

h) Strengthen the inspection and supervision of the market: Monetary and banking operations; strictly handle violations as prescribed by law, which focuses on:

- Inspecting the observance of regulations on deposit rates, credit granting, debt restructuring, debt classification, setting aside and using loan loss for bad debts, especially for big customers.

- Continuing to inspect the compliance with policies and regulations of the law in the banking sector related to loan programs for housing support under Resolution No. 02/NQ-CP dated January 7, 2013.

- Inspecting and supervising the operations of credit institutions, especially the poor credit institutions; inspecting and supervising the implementation of the Scheme of restructuring of approved credit institutions; urgently improving the Scheme of restructuring of a number of credit institutions that have not been approved under the guidelines and orientations passed by the leaders of the State Bank.

i) Actively implement solutions to restructure the credit institutions, settle bad debts in association with implementation of the overall scheme to restructure the economy, which focuses on:

- Formulating a scheme to restructure credit institutions associated with bad debts in the period of 2016 through 2020.

- Enhancing settlement of bad debts according to the market mechanism; conducting classification of debts purchased from credit institutions to take measures to handle bad debts effectively. Promptly adopting mechanisms and policies to promote the development of the debt trade market and encouraging the participation of domestic and foreign investors; promoting the role of the Asset Management Company of the Vietnamese credit institutions in settlement and recovery of bad debts and assurance of the interests of creditors.

k) Effectively implement the duties assigned in the resolutions of the National Assembly and prepare related information properly for sessions of the 14th National Assembly. Proactively communicate and enhance communication links across the banking system to support the effective implementation of monetary policy and banking operations.

3.For branches of the State Bank in provinces or cities (hereinafter referred to as provinces):

a) Cooperate closely with local authorities to effectively implement programs for connection between banks and enterprises to promptly realize and solve difficulties encountered by enterprises in the provinces. Periodically send reports on development and results of implementation to the State Bank.

b) Actively monitor and realize information and strengthen the inspection and supervision of the observance of regulations and guidance of the State Bank for credit institutions in the provinces. Strictly handle violations and determine specific responsibilities for individuals and organizations (if any).

c) Cooperate closely with other affiliates in the State Bank and credit institutions in the province in implementation of communications and cooperate with the National Assembly delegation.

4.Based on the direction and management solutions of the State Bank, credit institutions shall:

a) Actively keep balance between capital sources and capital use to ensure liquidity, stable deposit rates, with conditions for lending rates; focus on management of liquidity risks, risks of differences in terms and currencies, and safe operation of credit institutions.

b) Review and keep balance of the financial capacity to apply reasonable lending rates on the basis of deposit rates and the risk levels of loans; implement reduction in operational costs and improve business efficiency to reduce lending rates in order to share difficulties with the borrowers as long as financial safety is guaranteed.

c) Control credit growth in line with the ability to mobilize capital and credit growth targets notified by the State Bank, ensure that credit will grow safely and efficiently which enables enterprises to access to loan capital; and strictly control loans in areas potentially posing risks:

- Granting credit centrally to production and business fields, especially in priority areas under the direction of the Government. Strengthening the assessment and monitoring of loan use to ensure those loans are used for proper purposes to restrict new bad debts incurred. Strictly controlling the scale and structure of short-, medium- and long-term credit in Vietnamese dong and foreign currencies in conformity with ability, terms and structure of capital mobilization.

- Continuing to implement solutions to strengthen the lending risk control in the areas of investment and real estate business, BOT or BT traffic projects under the direction of the State Bank prescribed in document No. 5492/NHNN-TD dated July 21, 2015, Directive No. 6981/NHNN-TTGSNH day September 14, 2015 and Directive No. 05/CT-NHNN dated July 15, 2015. Credit granting is oriented from real estate sector to social housing projects, the commercial housing projects to meet the actual needs of the people according to the policy of the Government. Reviewing for amendments to or formulation of new policies, procedures and internal regulations concerning the credit granted to the real estate sector, the field likely to posing risks and long-payback projects to ensure the risk control for those fields.

- Actively researching and developing lending programs with reasonable interest rates in association with the innovation of the lending process towards simplifying loan procedures as long as taking account of ensuring capital adequacy and compliance with regulations of law, improving the appraisal capacity to reduce loan processing periods, and enabling enterprises to access credit. Strengthening transparency of credit information, propagating and providing guidance for borrowers in order for them to understand fully information related to the loan.

- Cooperating with branches of the State Bank in provinces and work directly with borrowers in overcoming difficulties in the credit relationship with customers, enabling customers to access bank credit capital in accordance with the law.

d) Strictly comply with the regulations and guidance of the State Bank and other provisions of the law on deposit and lending rates, loan fees, the regulations on foreign currency trading, listing of exchange rates and trading on the forex market, forex management, etc. Proactively detect and handle strictly the head of a branch or an affiliate of a credit institution committing a violation and send a report to the State Bank.

dd) Strengthen financial capacity, risk management, asset quality, credit quality and settlement of bad debts; strengthen solutions to ensure the safety and security of information technology systems in banking activities.

e) Continue to implement the restructuring plan, implement measures for settling bad debt, and strive to sustain bad debt ratio of less than 3% in the entire system. Timely send reports on difficulties, problems and proposed solutions in the process of restructuring and bad debt settling to the State Bank.

g) Develop and diversify banking products and services to meet the needs of the business, the economy, increase the enterprise’s accessibility to capital on the basis of the enterprise support programs of the government, relevant Ministries and agencies, in accordance with the regulations of the State Bank and the law on monetary and banking operations.

h) Actively coordinate with the State Bank and the State Bank branches in provinces in cooperation with the National Assembly delegation. Proactively provide the press with information about the implementation of solutions for money and credit and performance to build consensus opinion and support of the public for the operation of the banking sector.

5. Implementation provisions

a) This Directive takes effect on the signing date.

b) The affiliates at the headquarters of the State Bank, State Bank branches in provinces, on the basis of functions and tasks assigned, shall perform their duties prescribed in this Directive and Directive No. 01/CT-NHNN dated February 23, 2016, send monthly and quarterly reports on the implementation to the Office of the State Bank.

c) The Office of the State Bank shall cooperate with the affiliates of the State Bank in monitoring the implementation of this Directive and Directive No. 01/CT-NHNN dated February 23, 2016, send final reports to the Governor of the State Bank and the Ministry of Planning and Investment before every 20th of a month, the last month of each quarter and the entire year.

d) the Chief officers, the Director of the Financial policy department and the Heads of affiliates of the State bank, Directors of branches of the State Bank of provinces and central-affiliated cities, Presidents of the Board of Directors, Presidents of the Member assembly and General Directors (Directors) of credit institutions, branches of foreign banks shall implement this Directive./.

The Governor of the State Bank of Vietnam

Le Minh Hung