If the Draft Circular amended and supplemented several articles of Circular No.22/2019/TT-NHNN, the credit growth would be better, and the pressure to mobilise capital in the banking system would not be too stressful.
The script was appropriate for the current context
In the view of the State Bank of Vietnam (SBV), it was appropriate to review the roadmap to apply the maximum rate of short-term funds used for medium, long-term loans. Due to the pressure of the Covid-19 epidemic, the number of customers depositing at banks might decline. If the proportion of short-term capital were maintained in the mobilisation structure, commercial banks would be able to reduce capital costs and continue to deploy special interest rate packages for customers.
In fact, according to the statistics of SBV, by the end of Q1/2020, the ratio of short-term capital to medium, long-term loans of the whole banking system was estimated at 25.52%. In particular, the group of commercial banks with State capital was slightly higher, at about 28.92%.
This showed that, even if the SBV applied the maximum rate of 37 percent under the schedule, i.e. from October 1, commercial banks would not be affected much. However, if the proportion of short-term capital were maintained for medium and long-term loans, it would help to reduce pressure on capital mobilisation for banks. On the other hand, it also helped banks be more confident and proactive in funding capital to crucial projects and localities. This was also in line with the government’s policy to promote public investment.
From his perspective, Nguyen Khac Quoc Bao, the Head of Finance Department, University of Economics Hochiminh City, acknowledged that the current situation of Covid-19 epidemic was still quite complicated. Vietnam still had a high risk of external disease outbreaks. Therefore, at this time, both the input and output of commercial banks were facing difficulties. If SBV flexibly adjusted the capital adequacy ratios appropriately, it would create more favourable conditions for banks to restructure capital sources sustainably and had an inevitable delay to cope with adverse impacts in case that the disease persisted.
Sharing the same views, Can Van Luc, the Chief Economist of Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) also said that the demand for medium and long-term loans of the economy had started to increase after the months affected by the epidemic. The demand for re-investment loans of businesses was also climbing. Companies needed long-term loan packages to restore production and business activities. Meanwhile, at this time, the liquidity of the banking system was abundant. Therefore, maintaining the proportion of short-term capital used for medium and long-term loans would help banks inject more cash flow to the market, supporting the business community.
Reduce capital mobilisation pressure
According to the analysis of some commercial banks’ branches, although the proportion of short-term capital used for medium and long-term loans in many units was quite low and there was still room for growth of long-term loan packages. However, the capital market in the first six months of the year had been quiet. Activities to increase equity capital by issuing shares, long-term bonds for many credit institutions were not easy. Therefore, if the mobilisation rate of mobilised capital were used, the growth of jumbo loans would be slowed down, and credit growth in the last months of the year would be more difficult.
In terms of interest rates, a representative of a bank based in District 3 of Hochiminh City said that, currently, the interest rate ground was quite low, the difference between long-term interest rates and inflation was not significant. That made it difficult for banks to attract long-term capital. While if banks were close to the threshold of using short-term money for medium and long-term lending, they would have to increase the mobilisation of long-term capital to supplement the loan. Then the pressure to raise deposit rates to attract deposits would appear, and interest rates for long terms might fluctuate, affecting lending rates for the corresponding periods.
KB Vietnam Securities Company (KBSV) said that the resonance of the roadmap application of short-term capital used for medium and long-term loans in early October 2020 and the demand recovery of the medium and long-term loans might raise deposit rates slightly in the second half of 2020, pushing the competition on deposits in the banking system to be more intense than the current situation. The trend of reducing saving interest rates in the past seven months could reverse to rebound in the coming months.