From October 1: A minor change, but banks are concerned about its potential impact

From October 1, the ratio of short-term capital for medium and long-term loans of banks will decrease to 30%. Then, how would the decline in this rate affect banks?

In accordance with the roadmap specified in Circular 08/2020/TT-NHNN of the State Bank issued on August 14, 2020 amending and supplementing Circular 22/2019/TT-NHNN, banks will be required to lower the maximum ratio of short-term capital for medium- and long-term loans to 30% from the current 34% from October 1, 2023.

Previously, this rate had decreased from 37% to 34% as of October 1, 2022.

The State Bank of Vietnam has up to this time maintained the policy, despite several suggestions from enterprises and real estate business associations to postpone the date for tightening the ratio of short-term capital for medium- and long-term loans to 30%. 

Recently, the Ho Chi Minh City Real Estate Association (HoREA) proposed that the State Bank delay the deadline for tightening the usage of short-term capital for medium and long-term loans to 30% until October 1, 2024, rather than imposing the rules on October 1, 2023.

However, Dr. Tran Du Lich, a member of the National Financial and Monetary Policy Advisory Council, claims that after the epidemic has been controlled, it is time to put into action a plan to lower the ratio of short-term capital for medium- and long-term loans to control risks for the banking system. Commercial banks will remain vulnerable, in Mr. Lich's opinion, if they are permitted to assume the role of medium and long-term capital and then keep lowering the ceiling to employ short-term loans for medium and long-term loans.

Regarding this, the State Bank clarified that up to 88% of banks' mobilized capital at the moment is made up of short-term deposits. However, medium- and long-term debts make for up to 52% of the system's outstanding credit debts.

Therefore, with the goal of improving credit activities and ensuring liquidity for the banking system, the application of Circular 08/2020/TT-NHNN is anticipated to assist Vietnamese banks in better controlling liquidity risks, stabilizing operations in the face of changes at home and abroad, while also promoting sustainable economic development.

KB Securities Vietnam (KBSV) believes that lowering the ratio of short-term capital for medium and long-term loans will have some certain impacts on banks.

According to KBSV, as of July 2023, most banks have met the maximum ratio of short-term capital used for medium and long-term loans of 34%. ((applicable from October 1, 2022 to September 30, 2023).
The joint stock commercial bank group continues to have a greater ratio (32.66%) than the state-owned commercial bank group (24.97%). The overall ratio of short-term capital used for medium- and long-term loans across the entire system is 26.14%.

Previously, at the end of 2022, the majority of banks, with the exception of Oceanbank (32%), had a ratio of short-term capital used for medium- and long-term loans below 30%, complying with Circular 08.

Specifically, the ratio for short-term capital for medium- and long-term loans at Techcombank reached 29%, while it was 25% at Agribank, 26% at VietinBank, and 22% at BIDV. The banks such as Vietcombank and HDBank (ratio of 8%) are in the small group of banks with a ratio of less than 10% and are almost not affected by the new roadmap.

Some banks reported that the ratio of short-term capital for medium- and long-term loans climbed to more than 30% by the end of the second quarter of 2023, although the difference was not material.

For example, at Techcombank, by the end of the second quarter of 2023, this bank had a ratio of short-term capital for medium and long-term loans reaching 31.6%.

In assessing the impact of Circular 08, KBSV experts stated that, in the short term, lowering the ratio of short-term capital for medium and long-term loans will hinder the process of lowering interest rates for long-term loans when the economy is in need of support. At the same time, Circular 08 will partly put pressure on banks' long-term mobilization needs, increase capital costs and put pressure on narrowing net interest margins (NIM).

However, in the long run, it is anticipated that the implementation of new regulations will assist banks in better managing liquidity risks, stabilizing operations in the face of domestic and international upheaval, and supporting long-term sustainable economic growth.

Banks are currently providing primarily medium- and long-term capital for real estate credit, whereas mobilized capital is mainly short-term.

According to Dr. Tran Du Lich, commercial banks' burden on medium and long-term capital must be gradually reduced while being pushed directly, with the bond market serving as a key channel.

The KBSV experts acknowledged that Circular 08, which is about to be implemented, is one of the factors driving banks to buy back bonds before maturity and concentrate on issuing long-term bonds in the near future in addition to the fact that interest rates are relatively lower than they were previously.

Mai Anh/VNF