MONETARY MARKET UPDATE JULY 2025: SUPPORTING LIQUIDITY AND CREATING CONDITIONS FOR CREDIT EXPANSION
Our three main observations regarding monetary policy operations over the past month are: 1. The State Bank of Vietnam (SBV) is ready to provide liquidity to the system through open market operations, 2. The SBV gradually adjusts the central exchange rate within the permitted band, and 3. It paves the way for phasing out the credit allocation mechanism by issuing Circular 14.The outstanding loan balance under the SBV's collateralized lending channel is currently at a record high since 2017 (~VND 187 trillion as of July 24).
The central exchange rate has been adjusted upward by 3.4% since the beginning of the year, reaching VND 25,166/USD, corresponding to the upper limit of the exchange rate band at VND 26,424/USD, approximately VND 300 higher than the average interbank exchange rate as of July 24.
Circular 14/2025, issued on June 30 and effective from September 15, includes the following key points: 1. Introducing an internal rating method alongside the standard method, with the internal rating method imposing more detailed requirements on capital adequacy ratios, aiming to align these ratios with Basel III standards, and 2. Outlining a phased implementation roadmap, including testing and transition periods, until full adoption by January 1, 2030, allowing commercial banks to choose their method for calculating capital adequacy ratios.
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