The State Bank of Vietnam (SBV) will this year resort to compulsory reserve requirements among many different instruments to regulate money supply to ensure targets of growth and inflation control, an official of SBV said.

According to the source, SBV in 2012 mainly used treasury notes to do the job as liquidity of member banks was different at that time, meaning the compulsory reserve instrument was yet to be used in an effective way.

“SBV always seeks ways to withdraw money. Compulsory reserve requirement and gold selling as other instruments are expected to help the central bank withdraw considerable volumes,” he remarked. And SBV can revise compulsory reserve ratio up to a reasonable level when necessary, he added.

Currently, the compulsory reserve ratio of Vietnam dong applicable to local banks is 3% of total deposits and the rate remained unchanged during 2012.

In related news, credit institutions having bad debt ratio of 3% or higher to total outstanding balances or certain ratios set by the central bank will have to transfer the debts to the Vietnam Asset Management Company (VAMC) that will be established soon. Those banks failing to do so will be inspected by the central bank or will be demanded to hire an independent audit company for re-assessing assets’ quality, owner equity and chartered capital.

This is one of the basic points of a draft decree on organization and operation of VAMC that the central bank presented for discussion in a meeting with local lenders in Hanoi last Friday. Based on inspection and audit results, credit institutions will have to transfer bad debts to VAMC to ensure their bad debt ratio will not exceed 3%. Banks burdened with bad debts will also have to undergo restructuring in line with SBV’s approval.

As per the decree, the management council of VAMC will consist of 11 members with six experts and five representatives of the ministry of Justice, Finance, Construction, Natural Resources and Environment and the central bank.

VAMC’s control board should have five members and its management board will have one general director but no more than five deputy general directors. The company will be allowed to set up branches in a number of provinces and cities.

The Saigon Times Daily