Solutions to overcome credit space limitations, inadequacies of capital market

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SBV's Deputy Governor Pham Thanh Ha

Seriously controlling inflation risks in 2023

Speaking to the press about the orientation and solutions to manage monetary policy in 2023, SBV's Deputy Governor Pham Thanh Ha said that shortly, the global economic context would continue to face many unfavourable and unpredictable factors, and Central banks will maintain tight monetary policies and raise interest rates to control inflation.

Although domestic inflation is under control, its pressure will continue to increase in 2023, especially core inflation, which may create many challenges for inflation control in 2023.

Deputy Governor Pham Thanh Ha stated that, on the supply side, the high world commodity prices in the 2020 - 2022 period would continue to affect production costs (import inflation), thereby affecting consumption costs of domestic goods. On the other hand, on the demand side, it is expected that the domestic economy will continue to recover, thereby promoting the recovery and quick growth of the economy's aggregate demand and putting pressure on prices. Therefore, SBV's Deputy Governor emphasized that it cannot be negligent with inflation risks in 2023.

To achieve the 2023 average inflation target of about 4.5% set by the National Assembly, the Deputy Governor said, the SBV will continue to actively and flexibly apply policy tools to control inflation, flexibly manage the exchange rate and combine monetary policy measures and tools to stabilize the foreign currency market; actively intervene in the currency and foreign exchange markets to meet the liquidity needs of credit institutions, thereby contributing to stabilizing the market and ensuring the security of the banking system.

However, regarding capital sources, the SBV's representative said that currently, the economy's medium and long-term investment capital depends mainly on the banking system. In contrast, the mobilized capital of banks is mainly short-term investments, so the credit institution system will face the risk of liquidity and payment term.

"To provide capital for economic development, developing a safe and sustainable market such as the corporate bond market and the stock market is necessary. Accordingly, it is necessary to review legal regulations and offer solutions to overcome inadequacies in these markets," said Mr Pham Thanh Ha

Bank credit is just one of the sources of capital. Photo: Internet

Credit space is very limited

Speaking more about this matter, Mr Pham Chi Quang, Director of the SBV's Monetary Policy Department, said that according to World Bank, Vietnam's credit-to-GDP ratio now reaches 124%, the highest ratio among countries with low income, and according to Moody's, Vietnam's credit-to-GDP ratio is the highest of the Ba and Baa credit rating countries.

"The total credit balance of the banking industry has reached approximately VND 12 quadrillions, a very large number. Therefore, the space for credit management in the above context is very limited, "said Mr Quang.

According to Mr Pham Chi Quang, among the resources to create capital for the investment process of socio-economic development, bank credit is only one of the sources besides the own capital of enterprises, capital from the stock market, corporate bonds, public investment capital, FDI capital, and remittances.

However, in the context of complicated and unpredictable developments in the stock market, corporate bond market and real estate market with signs of shrinking, it puts more pressure on the balance of bank credit and the monetary policy management in 2023. In addition, the slow disbursement of public investment also increases the pressure on the capital supply for the economy on bank credit.

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Therefore, he suggested opening up and creating a connection and synchronous development of all these capital sources, of which bank credit is considered a nucleus and a blood vessel to connect these capital sources.