Transcript The role of asset price channel in Monetary policy

The impacts of SBV on
asset markets
Banking Academy of Vietnam
Content

Overview of SBV

The impacts of SBV on asset markets

Fundamental of asset price in monetary
transmission mechanism

Empirical impacts of SBV on asset markets
Overview of SBV

The State Bank of Vietnam (SBV) is a ministerial-level agency of the
Government and the central bank of Socialist Republic of Vietnam.
5/1990
State Bank of Vietnam
(works under two-tier
operation mechanism:
SBV implements the
state management,
commercial banks
conduct currency
trading)
5/1951
National Bank of
Vietnam (focus on
currency issuance and
work as a tool of State
Budget)
10/1961
State Bank of Vietnam
(works under one-tier
operation mechanism:
monetary management
and currency trading)
2010
Operates under the
Law on the State Bank
of Vietnam
Overview of SBV

Functions of SBV:
SBV performs the state management of monetary, banking and foreign exchange
operations and performs the function of a central bank in issuing money, a bank
of credit institutions and a provider of monetary services for the Government.

Tasks of SBV:
To conduct operations for the purpose of currency value stability; to assure the
safety for banking operations and the system of credit institutions; to assure the
safety and effectiveness of the national payment system; and to contribute to
accelerating socio-economic development along the socialist orientation.
Overview of SBV

Organizational structure: SBV includes 27 entities in which

20 entities supports Governance in State management:


Monetary Policy Department

Foreign Exchange Management Department

Credit Department

Monetary and Financial Stabilization Department

Monetary Forecasting and Statistics Department

……
7 entities are non-productive units:

National Credit Information Center

Banking Review

Banking Academy of Vietnam…
Fundamental of asset price in monetary
transmission mechanism

Mishkin (2001) mentioned three channels of asset prices through which
monetary policy affects the economy.
Asset prices
Stock market prices
Investment
effects
Firm
balance
sheet
effects
House- Household
hold
wealth liquidity
effects effects
Real estate prices
Housing
expenditure
effects
Household
wealth
effects
Exchange rate
Bank
Net
balance
export
sheet
effects
effects
Balance
sheet
effects
Fundamental of asset price in monetary
transmission mechanism

Stock market effects

Investment effects: based on Tobin’s q-theory (Tobin, 1969) in which Tobin’q is
defined as the market value of firm divided by the replacement cost of capital.
Money supply ↑ => Stock prices ↑ => Tobin’s q ↑ => I ↑ => Y ↑

Firm balance-sheet effects:
Money supply ↑ => Stock prices ↑ => Net worth of firms ↑ => Lending ↑ => I ↑ => Y ↑

Household wealth effects:
Money supply ↑ => Stock prices ↑ => Household’s wealth ↑ => C ↑ => Y ↑

Household liquidity effects:
Money supply ↑ => Stock prices ↑ => Financial Assets ↑ => Likelihood of Financial
Distress ↓ =>Durable exependiture and Residential housing spending ↑ => Y ↑
Fundamental of asset price in monetary
transmission mechanism

Real estate prices

Housing expenditure effects
Money supply ↑ => House price ↑ => Housing expenditure ↑ => Y ↑

Household wealth effects
Money supply ↑ => House price ↑ => Household wealth ↑ => C ↑ => Y ↑

Bank balance-sheet effects
Money supply ↑ => Real estate price ↑ => Bank capital ↑ => Lending ↑ => I ↑
=> Y ↑
Empirical impacts of SBV on asset
markets
Stock
market
Gold
market
Real estate
market
Stock market
07/2000
- HCM stock
exchange
- First dealing
session
2007
- Law on Securities
- Highest point: 1170
(03/2007)
03/2005
Hanoi stock
exchange
02/2009
Lowest point:
235.5
2016
Derivatives
market
Stock market
2006-2007
• Booming period
200803/2009
• Recession period
04/20092015
• Recovery period
Stock market (2006 – 2007)
1. Vietnam has participated in WTO
2. Strong herd instinct
3. Expansionary monetary policy
Policy rate and Money supply growth rate in
Vietnam during 2006 - 2015
16.000
60.000
14.000
50.000
12.000
40.000
10.000
8.000
30.000
6.000
20.000
4.000
10.000
2.000
.000
2005
2006
2007
2008
2009
2010
Policy rate
2011
2012
2013
M2 growth rate
2014
2015
.000
2016
Stock market (2008 – 03/2009)
1. Stock market bubble has been
burst
2. Global financial crisis has
affected foreign investors and then
domestic investors
3. Contractionary monetary policy
4. Problems of Vietnam stock
market:

Newly established

Does not work based on market
rules: struggle in speculation,
market manipulation, increase
in margin lending (leverage)
Stock market (04/2009 – 2015)
1.
Unfavorable economic conditions: low economic growth, high level of public
debt and NPL of banking system…
2.
2. SBV’s restriction on securities lending: from 20% to 5% charter capital
Stock market

Nguyen Phuc Canh (2014) employed SVAR model to analyze the effectiveness
of asset price channel through stock price in Vietnam during 2000 - 2012. He
concluded that the change in money supply but policy rate has effect on
stock price.

Ha Thanh Viet (2015) referred that stock price is driven by many other
factors rather than the influence of monetary policy from SBV.
Gold market

Gold interventions – A timeline

SBV’s management of gold trading

SBV’s impacts on gold market
Gold interventions – A timeline

2008 – 2009: Gold trading floors

2010: Closure of Gold trading floors

2011: Gold lending and deposit taking by banks prohibited

2012: SBV monopolizes gold bar production (Decree 24/2012/ND-CP)

2013: Trading licenses and Gold auctions
In February 2013 the SBV prohibited the trading in all other gold bar brands
apart from the SJC brand
SBV’s management of gold trading

The legal ownership of gold by entities and individuals are acknowledged and
protected in accordance with laws.

Organizations and individuals engaged in the business of gold must comply
with the Government’s regulations and other relevant provisions. The SBV, on
behalf of the Government, manages gold trading for the aim of developing a
stable and sustainable domestic gold market.

The SBV have the rights and obligations to conduct the inspection and
supervision of the production of gold jewelry; gold bullion and jewelry
trading; the export and import of raw gold and other gold trading.
SBV’s management of gold trading
(cont.)

Gold bullion market

The State is the sole producer of gold bullions, the sole exporter and importer
of raw gold for gold bullions production. The SBV organizes and manages the
production of gold bullions; exports and import raw gold for gold bullions
productions; purchases and sells gold bullions in the domestic market in
accordance with Decisions of the Prime Minister.

Gold bullion trading is a conditional activity licensed by the SBV.
SBV’s management of gold trading
(cont.)

Gold jewelry market

Gold jewelry production is a conditional activity under the certificate of
eligibility and qualification granted by the SBV.

Gold jewelry trading is a conditional activity without granted certificate of
eligibility and qualification of the SBV.
SBV’s management of gold trading
(cont.)

Export and import of raw materials for gold jewelry production

The SBV will consider granting license of importing raw gold materials to
produce gold jewelry for those enterprises including: the enterprises with the
certificate of eligibility and qualification granted by the SBV; the enterprises
with foreign investment; the enterprises investing in gold mining abroad and
having demand for importing their mined gold.

The SBV will consider allowing the licensed gold mining enterprises to export
the raw gold.

Gold trading enterprises which have signed gold jewelry processing contracts
with foreign enterprises are considered by the SBV to be granted the license
of temporary import of raw gold and to re-export finished products.
SBV’s management of gold trading
(cont.)

Other gold trading
Organizations and individuals shall be eligible to operate the other types of gold
trading after getting the permission from the Prime Minister and license from the
SBV.
Million VND
Gold price from 01/2011 to 11/2015
Vietnam gold price
Global gold price
Source: SBV
SBV’s impacts on gold market
-
Be responsible for gold mobilization by buying gold to increase the official
reserves and capital supply to the economy
-
Turn the gold bar mobilizing and lending relations into trading relations
-
Limit negative impacts of global gold price fluctuations on Vietnam gold price
-
Reduce the problem of gold speculation and “goldization”
-
Support banking system and the macro economy
Real estate market

Features of Vietnam’s real estate market in 2015

The 30 trillion stimulus package

SBV’s impacts on real estate market
Features of Vietnam’s real estate
market in 2015

Foreign direct investment continues flowing into the real estate sector

As the market warms up, more successful transactions have been reported,
while the inventory level has fallen

An open legal framework has been set up for the real estate market

Improved infrastructure helps develop real estate market

Loans for real estate projects have increased rapidly

Resort real estate is strongly developing
The 30 trillion
stimulus package
- Disburses through SBV and provides
participating lending institutions with capital
refinancing with operating margins for bans
incorporated
- Has been successful at reorienting developers
and lenders toward the affordable housing
market, yet at a high economic cost to
government, which is not fiscally sustainable
- Is not an economically efficient approach to
expand access to mortgage finance and is
recommended to be restructured
SBV’s impacts on real estate market
SBV is responsible for the financial stability and soundness of the housing finance
sector with lending standards, prudential regulations and management of
interest rates. SBV engages commercial banks and non-bank financial institutions
(e.g. microfinance institutions) in housing sector lending and supports
development and manages housing finance subsidy programs. SBV also develops
measures to encourage commercial banks to scale and diversify housing finance
products and provides oversight toward the national credit information
aggregator, the Credit Information Center.
Monetary indicators growth
Deposit and lending interest
rates
Source: SBV
Residential price index in
Hanoi – Q4/2015
Residential price index in
HCMC – Q4/2015
THANK YOU FOR LISTENING!