Vietnam central bank switches to back economic growth: ADB

The State Bank of Vietnam has been managing well, especially with recent interest rate cuts, indicating the country has moved on from taming inflation to backing economic growth, said Asian Development Bank (ADB) chief economist for Vietnam Nguyen Minh Cuong.

At an ADB press briefing in Hanoi Tuesday on the release of the Asian Development Outlook (ADO) April 2023, Cuong said the SBV’s moves did not oppose those of other countries.

Last week, the SBV announced it would lower its policy interest rates by 0.5 percentage points from April 3, the second cut within one month, to support growth amid global economic headwinds.

Cuong said the U.S. Federal Reserve is at a crossroads as it simultaneously raised interest rates and conducted quantitative easing (pumping out money to the market). As a result, the SBV move is a decisive one, he said.

No systematic issues with Vietnamese banking system

The ADB sees no systemic issues with its investments in the banking sector in Vietnam, ADB country director for Vietnam Andrew Jeffries said while answering questions from The Investor.

For the question about the ADB’s activities with local commercial banks and the possibility of re-evaluation, he said “We don't see systemic risk in the banking sector at the moment. We've been very prudent in how we've invested in local banks, and we've invested in strong banks going forward."

On Monday, ADB announced it would double the trade finance limit for Vietnamese lender SeABank to $60 million, and increase the revolving loan limit from $5 million to $10 million.

Last November, ADB and Vietnamese lender VPBank signed a loan package of up to $500 million to expand access to finance for women-owned small and medium-sized enterprises and social loan projects in Vietnam.

In 2018, ADB and state-controlled BIDV bank signed a $300 million loan agreement to support the growth and productivity of SMEs in the country.

Vietnam's Techcombank has joined ADB's Trade and Supply Chain Finance Program - TSCFP. In 2014, the Vietnamese central bank assigned Techcombank to serve an ADB-funded sustainable urban transport project for Metro Route No. 2 in Ho Chi Minh City.

Jeffries added, “The turmoil in the United States is kind of a bellwether of the very difficult position that central banks face with managing and maintaining financial stability on one hand, and fighting inflation on the other.

"Because the policies and tools you use to help one are not necessarily helpful for the other, so it's a very difficult balancing act. At the moment we don't see systemic issues with our investments in the banking sector."

ADB economist Cuong said his bank would continue to provide loans for Vietnamese banks.

Jeffries made clear that prudent provisioning, accumulating capital resources, and resolving bad loans are important matters for a number of banks in the country to address, even if that constrains near-term activity that sets up the sector in the medium term for supporting the country’s growth.

The Vietnamese economy is expected to grow moderately at 6.5% this year despite global headwinds and further expand at 6.8% in 2024, lower than 8% in 2022, according to an ADB report released on Tuesday. The country's inflation can accelerate to 4.5% in 2023 and 4.2% in 2024 from 3.2% in 2022.

The growth will be constrained this year due to the global slowdown, spillover from the Ukraine-Russia conflict, and other factors, the ADB said. The supporting factor is the reopening of China, the ADB added.

The SBV's "surprise" policy rate cuts made Vietnam the first economy in Southeast Asia to ease monetary policy, the ADB commented. The central bank acted because stressed capital markets had caused a credit crunch for real estate and hit investors' confidence. Meanwhile, slightly lower inflation and recent banking turmoil in the U.S. were seen to motivate the Fed to temper its hawkish monetary tightening, potentially easing cost-push inflation abroad. At the same time, pressure was mounting for action to maintain economic growth in Vietnam as the global economy stalled.