HANOI UNIVERSITY
FACULTY OF MANAGEMENT AND TOURISM
-------oOo-------
FINANCIAL & MONETARY THEORIES ASSIGNMENT
TOPIC 7
Lecturer: Đào Mai Hương
Group members:
Trịnh Hoàng Anh - 2004040016
Phạm Duy Anh - 2004040011
Trần Thị Phương Anh - 2004040014
Đặng Vũ Thảo Phương - 2004040087
Trịnh Viết Tùng - 2004040117
Class: Tutorial 1
Course: Financial and Monetary Theories
Date: 13-11-2022
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Table of Contents
ABSTRACT....................................................................................................................................2
I, Introduction about State Bank of Vietnam (SBV’s)................................................................3
II, Details about SBV’s monetary policy.....................................................................................4
III, Effect of policies on stocks and bonds market......................................................................6
IV, Conclusions...............................................................................................................................8
REFERENNCES...........................................................................................................................10
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ABSTRACT
Since the beginning of COVID in 2019, the world’s
economy and finance has turned into a new page with more and
more twists and turns. In 2022, when the pandemic had been
controlled all over the world, new problems occurred. The
financial market is going through more ups and downs than ever.
With the current worldwide changes starting since the beginning of
2022 such as Russia and Ukraine inflation has risen all over the
world, every Nations – more specifically Central Banks must come
up with new regulations to control the inflations. So does Vietnam,
and according to the data illustration, Vietnam has successfully
minimized the inflation rate. Stabilizing the financial market,
protecting the system of banks is the main role of the Central Bank
all over the world. In this circumstance, the State Bank of Vietnam.
This report will go into more details about the regulations that
State bank of Vietnam have executed to control the inflation rate.
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I, Introduction about State Bank of Vietnam (SBV’s)
The State Bank of Vietnam is an agency of the Government of Vietnam, also called the central
bank of the Socialist Republic of Vietnam. SBV performs the function of managing currency,
banking activities foreign exchange, currency issuance, banking of credit institutions and
provision of monetary services to the Government.
1. History of establishment:
On May 6, 1951, President Ho Chi Minh signed Decree No. 15/SL establishing the National
Bank of Vietnam. On January 21, 1960, the General Director of the National Bank recognized
the Prime Minister's right to sign Circular No. 20 / VP-TH, officially change this bank’s name to
the State Bank of Vietnam (SBV).
2. Present Leadership:
Governor: Nguyen Thi Hong - Member of the Party Central Committee
Standing Deputy Governor: Dao Minh Tu - Former Chief of Office of the SBV (permanent)
3. Structure organization:
The State Bank of Vietnam has 20 units performing the state management function, including:
Monetary Policy Department, Foreign Exchange Management Department, Payment
Department, Credit Department for economic sectors... and 7 units career includes: Banking
Strategy Institute, Vietnam National Credit Information Center, Banking Times.
4. Comparisons between the Federal Reserve and the State Bank of Vietnam:
Most countries have their central bank, which assists the government in running the
economy through financial institutions and monetary and interest rate policies. Among them, the
US Federal Reserve (FED) is a typical one; this is also a good model for the State Bank of
Vietnam to refer to. Here are some comparisons of the Fed and the State Bank of Vietnam.
In terms of capital, the US Federal Reserve has a much larger capital of up to 4.5 trillion
USD, whereas the SBV has only 476.2 million USD. This is normal and understandable given
that the US is an extremely developed economic country, and the Fed was established long
before the SBV was founded.
In terms of legal status, the Fed is a Central Bank independent of the Government while
the SBV is a Central Bank directly under the Government. For the FED, the Government has no
right to interfere in the operation of the central bank and it is both private and state. Also, FED is
a bank of banks and a bank of the Federal Government. In stark contrast to the FED, the
Government has great influence over the central bank through appointing members, formulating
and implementing monetary policy, and is a ministerial agency of the Government. Like other
state-owned banks, State Bank of Vietnam and the FED has a variety of administrative tools such
as Reserve Requirements, Interest Rates, Exchange Rates, and Credit Lines. However, the
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Federal Reserve has 3 additional tools, namely Purchase Agreements, Sell-off Market and Open
Market.
II, Details about SBV’s monetary policy
According to the 2010 Law on the State Bank of Vietnam, the SBV Governor shall
determine the use of tools for implementing the national monetary policy, including the re-
financing, the interest rates, the exchange rates, the reserve requirements, the open market
operations, as well as other tools and measures as stipulated by the Government. The monetary
policy created by the State Bank, with the goals of reducing inflation, preserving macroeconomic
stability, and promoting economic growth. Some of the policies that SBV can apply include Re -
financing, adjusting Interest rates and Exchange rates, Meeting the Reserve Requirements and
Open market operations.
Re-financing: Re-financing is a form of credit extension by the SBV, aiming to provide
short-term loans and payment facilities for credit institutions. The SBV stipulates and
performs the refinancing for credit institutions in the forms of extending loans guaranteed
by valuable papers; discounting valuable papers; and other forms of re-financing.
Interest rates: The SBV shall announce the re-financing interest rates, the key interest
rates and other interest rates to implement the monetary policy, and to prevent high-
interest lending. In the case of unexpected developments in the money market, the SBV
may stipulate the mechanism for managing the interest rates applied to lending-
borrowing transactions among the credit institutions, and between the credit institutions
and their customers, as well as other credit relations. (See SBV's Table of Interest Rates)
Exchange rates: The exchange rates of VND against different foreign currencies shall be
determined on the basis of foreign currency supplies and demands in the market with
certain State regulation. The SBV shall announce the exchange rates, determine the
exchange rate regime and the mechanism for regulating the exchange rates. (See Table of
Central Exchange Rates)
Reserve requirements: Reserve requirements mean the amount of money that the credit
institutions must deposit at the SBV to facilitate the implementation of the national
monetary policy. The SBV shall stipulate the ratio of reserve requirements for each type
of credit institutions and each kind of deposits at the credit institutions. The SBV shall
also stipulate the interest payment on the reserve deposits, and any excess deposits
applicable to each type of credit institutions for each kind of deposit. (See Table of
Reserve Requirements)
Open market operations: The SBV shall perform the open market operations by
purchasing and selling valuable papers with the credit institutions; and shall stipulate the
types of valuable papers to be traded via the open market operations.
From the beginning of 2022 until now, the world economic situation has been unpredictable,
the risk of weakness from the global development force has increased; the international dollar
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appreciated strongly; Fed raised interest rates at a faster, stronger pace; ascending guidance of
central banks around the world; tensions between Russia and Ukraine, etc.). In the
circumstances, a couple of policies have been initiated. However, the two main policies that is
considered to be outstanding is the 2% interest rate support and the SBV’s policy to promote the
application of digital technology in the development of banking services.
1. The SBV 2% interest rate support program.
The main purpose of this program is to create favorable conditions for borrowers,
checking and monitoring interest support loans and lastly, to ensure public and transparent
implementation of interest rate support. In order to execute these purposes, since the beginning
of 2022, the SBV had directed and oriented the credit flows to focus on production and business
activities, the priority fields, controlling credit for potentially risky areas. With the actively
implementing and closely monitoring the implementation, the program has had a positive impact
on the economics and the financial markets.
Thanks to the program, until June 09, 2022, the outstanding credit of the whole economy
increased by 8.15% as compared to that of the end of 2021, increased by 17.09% in comparison
with the same period of 2021, and in accordance with the more positive developments of the
economy. Thereby, contributing to boosting the economic activities, creating a strong
momentum for the recovery of the macro indicators, thus helping to recover and develop the
economy. At the same time, the banking sector would continue to implement various robust
solutions to support the COVID-19 affected people and businesses, meeting the capital demand
for production and business activities through the rescheduling of debt repayment terms,
exemption and reduction of banking interest and fees; implementing a program on providing
loans for the payments of workers’ salaries and job suspension benefits; the solutions on the
exemption and reduction of payment service fees, etc.
2. The SBV’s policy to promote the application of digital technology in the
development of banking services
The main purpose of this program is to ensure the stability of the financial system, create
a fair competition environment and protect the legitimate rights of customers using the service.
In order to effectively implement the Digital Transformation Plan, the SBV has established a
Steering Committee and Working Group on Digital Transformation of the Banking Sector to
promote digital transformation in association with ensuring information security and safety in
banking operations.
The SBV directed the construction and operation of an electronic clearing system for
retail transactions (ACH) with real-time payment capability, 24/7 continuous operation, multi-
channel transaction processing capable of integrating and connecting with other industries and
fields to provide banking products and services on digital platforms. By the end of 2021, the
system had 52 members, the average growth rate reached 82.56% in quantity and 128.31% in
transaction value compared to 2020. ATM and POS networks were established. coverage to all
provinces and cities across the country. By the end of December 2021, there are 20,404 ATMs,
323,572 POS and more than 90,000 operating points accepting QR Code payments.
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III, Effect of policies on stocks and bonds market.
1. Stocks market.
In 2022, pressure coming from Federal Reserve policies caused the SBV to make changes in
the operating interest rates, more specifically, raising the operating interest rate by 1%.
Adjusting the interest rates is a common tool for Central to apply when it comes to dealing with
inflations in short term run.
Even though some has managed to motivate households, firms, corporations, and businesses
to borrow from banks and financial institutions, which stimulate the development of the
economy. However, SBV tries to ease the pressure on the currency and foreign exchange
markets, increase the exchange rate and modify the operational interest rate. As a result, the
short-term forecast for the economy in general and for enterprises is unintentionally impacted by
this. In response to the Central bank’s interest rate policies and many other factors, the Vietnam
stock market in 2022 is quite gloomy
Explaining the impact of the change in raising operating interest rates on the stock market. It
is known that firms and businesses borrow funds for expansions and operations from financial
intermediaries. The interest rate is the fee for firms to borrow the money, that is why, when the
Central Banks increase the interest rates, it costs firms more fees to borrow the money. They will
need to postpone or slow down the expansion because of the shortage in money. With less profit
being made, the firm's stock price will decrease. As a result, the whole stock market will bearish.
The impact of interest rate regulations, in this case increase in interest will affect the market in
the short - term. However, in the long -term run, it still needs to be considered in many
other factors to determine the future of the stock market. The impact coming from the rise in
operating interest rates would be illustrated clearer by the below graph
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In the bottom line, an increase in interest rate makes the firm’s stock less attractive to the
investor. This has caused a decrease in stock price.
In long run and medium run, the stock market may experience growth. However, yet given
its still-modest size, it is unable to meet the demands of the economy, revealing its flaws and
upsetting investors. Therefore, the Ministry of Finance should immediately review and amend
any outdated regulations, particularly those that deal with corporate information transparency,
the rights and obligations of management entities, and the strengthening of sanctions programs to
severely punish legal transgressions. We must be honest about this, and the government has
ordered the authorities to severely punish offenders.
2. Bonds market
Based on the National Assembly's aim of economic growth of approximately 6–6,5% in
2022 and inflation set at around 4%, the Government and the State Bank of Vietnam have also
directed loan growth by about 14% in 2022. updated to account for modifications and recent
events. Maintaining the credit limit tool is appropriate in the current environment to maintain
banking system security, which will subsequently aid in reducing inflation, fostering economic
growth, and stabilizing the macroeconomy. During the first six months of 2022, Vietnam’s bonds
market has experienced fluctuation movements.
Vietnam's corporate bond market is still small compared to other countries in the region.
Therefore, businesses rely heavily on bank credit (in 2021, the credit scale will reach 124.3
percent of GDP). This situation has been creating great pressures and risks for the credit
institution system when mobilized capital is mainly short-term (the ratio of short-term capital
mobilization accounts for about 82% of total capital mobilization). The ability to reverse the debt
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of enterprises will be quite low due to limitations in accessing loans from banks. According to
the data of VnEconmy, corporate bonds market has been quite quiet since the beginning of 2022.
Similar to the stocks market, the increase in interest rate also affects the bonds market in
a downward trend. It is known that the bond’s price and the interest rate have a negative
relationship. The reason for this negative relationship is that a bond's price reflects the worth of
the revenue it generates through coupon (interest) payments. In the short run, the value of older
bonds that provide greater interest rates increases as market interest rates (particularly those on
government bonds) decline. When selling these bonds on the secondary market, the investor who
owns them may charge a premium. However, that is in the short run circumstance. If the interest
rates are prolonged.
In the long run, the bonds market will no longer be negative affected anymore.
Explaining for this situation, it is mainly depending on the maturity days of the bonds, due to the
possibility of investing the proceeds from aging bonds in new bonds that have greater yields.
At the same time, cash flow from sales activities is facing many difficulties in the context
of rising interest rates and tight credit. Although the State Bank and related departments have
been taking supportive actions, it is still not large enough to open capital flows. According to
experts, in the short term, the bond value tends to increase, but if the legal knots are not removed,
there is a lack of support and direction from the operator, and it is likely that difficulties in the
corporate bond market will continue. Moreover, it can be seen that there are some notable risks
of bad debt and increasing interest rates of the market from the possibility of maturity of
corporate bonds of real estate companies in the near future.
IV, Conclusions
During the 2022, when the financial markets and the Economy has been fluctuating and
instability. Inflation happens all around the world; many countries is suffering difficulties in
stabilizing price level. SBV’s policies in controlling inflation under 4% is considered to be
impressive. Even though in the short run, the financial markets – including bonds and stocks
market – is still unpredictable. However, Vietnam’s financial markets is said to have many
growth potentials. The SBV impacts may have a negative effect in short-run, but in the long-run,
these policies may perform its positive effect.
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REFERENNCES
1. June 2022, The SBV actively implements and closely monitors the implementation
of the 2% interest rate support program, [Link]. Retrieved from:
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centerWidth=80%25&dDocName=SBV506210&leftWidth=20%25&rightWidth=0%25&
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