Solutions to limit risk- taking in Vietnam credit institutions for low interest rates

Abstract

The periods of 2006- 2007 and 2009- 2010 experienced a common trend of expansionary monetary policy conducted by State Bank of Vietnam (SBV), specifically low interest rate and high growth rate of money supply. It is undeniable that easing money resulted in rapid economic growth and low unemployment rate. However, that was also followed by negative consequences such as high inflation and non-performing loans which damaged to financial system and macro-economy as well. Risk-taking behavior of credit institutions is considered as a reason for unstable banking system and economy in general. From 2013 to 2015, SBV has pursued flexible, prudent and gradually easing monetary policy. At the same time, there is a deep fall (of 60% compared to second half of 2011 and lower than 2005-2006) in policy interest rates in order to support for enterprises and thereby to promote aggregate demand. At the moment, SBV necessarily offers forward-looking and timely solutions to limit risk-taking when interest rates are low, aiming to avoid high inflation scenarios like 2006- 2007 and 2009- 2010.