The State Bank of Vietnam (SBV) had issued Circular No.08/2020/TT-NHNN amending and supplementing Circular No.22/2019/TT-NHNN on prudential ratios and limits in the operations of banks. Accordingly, the time limit for applying the maximum ratio of short-term funds used for medium and long-term loans by commercial banks would be delayed by one year compared to the old provisions.
The policy was looked forward by the market
According to SBV, the main objective of the amendment of the capital adequacy limit regulations was to create conditions for banks to better support borrowers to restore production and business.
Indeed, the current ratio of using short-term capital for medium and long-term loans of the whole credit institution system was only 25.52%, which was below 29%in both the state-owned commercial banks and joint-stock commercial banks. However, the pressure from the compulsory application of the rate of 37%, according to Circular 22 from the beginning of October 2020, would partly make the capital structure plan of banks difficult. Not to mention that, due to the impact of the Covid-19 epidemic, the source of deposits of commercial banks tended to decrease, making it difficult for banks to balance the rates of mobilisation and lending.
Assessing the market support action of SBV when issuing Circular 08, Phan Le Thanh Long, director of the Australian Institute of Chartered Accountants and Management in Vietnam, said that the nature of shortening the short-term capital for medium and long-term loans was to hold the current ceiling level for another year. This helped banks to reduce the cost of mobilising, thereby reducing the cost of medium and long-term loans for the business community.
According to Long, the main goal that SBV aimed at when issuing Circular 08 was to anticipate the risks of capital safety and liquidity that might occur as, since the beginning of the year, most commercial banks had restructured the repayment term for customers, which meant that many short-term loans had been converted into medium-term loans. When Circular 08 took effect, it would help credit institutions feel secure with restructured debts and continue to open up to supply medium and long term capital for the economy. However, the pressure on commercial banks was not small because the capital absorption capacity of the market was not large. Since then, to the end of the year, credit officers would have had a hard time running their loan targets while keeping bad debt under control, so there would be much pressure, said Long.
Sharing the same point of view, a representative of a commercial bank branch in Hochiminh City said that the newly issued Circular 08 was a legal document that unleashed the binding of commercial banks. Since the beginning of the year, the debt structure for customers had been influenced by the Covid-19 epidemic, which had made banks use up part of their room for pure medium-term loans. If they could keep the ratio of 37 percent of short-term capital for medium and long-term loans for another year, banks could feel more secure to increase medium-term loans in the coming months.
Trade-offs but still have to hedge
According to analysis from many financial experts and enterprises, with the term rescheduling, the ratio of short-term capital for medium and long-term loans had reduced. Thereby, the short-term pressure on both commercial banks and enterprises also slightly declined. In the context of the current low increase in mobilised capital of the banking system (up to July 28, the mobilised capital increased by 3.51%), the proactive move of SBV would help commercial banks reduce pressure on capital mobilisation. Meanwhile, for businesses, although the current demand for loans was relatively weak, it was expected to increase rapidly again when the epidemic was over. In the coming months, the need for medium and long-term loans to restructure production and business would have access opportunities when commercial banks had plenty of room to supply.
As for enterprises, many opinions said that in order to put the positive effects of Circular 08 into practice, besides the banking industry, the government should have more policies to support businesses to recover, especially businesses that operated in labour-intensive industries. For example, it was clear that enterprises that employed more than 1,000 employees, with export turnover of over $ 10 million, could access preferential capital with a five percent interest rate or three percent interest loans for six months to pay salaries.
Particularly for commercial banks, most financial experts had said that this time was a quite good time for banks to balance their mobilised capital and lending and promptly take advantage of the need for re-financing business investment for credit growth in the last months of the year. However, there were also opinions that commercial banks still needed to pay special attention to liquidity safety.
Tran Huu Hoang, a financial expert at FPT Information System, said that the control of the ratio of short-term capital for medium and long-term loans in the current period for the banking system was very remarkable. Because by keeping the ratio of short-term capital for medium and long-term loans, banks might trade liquidity risks for higher net interest margins. Therefore, SBV needed to stick to this movement to adjust accordingly.
Hoang said that in the current period because the loan output of commercial banks was quite tricky, the demand deposit source (CASA) was large, and the net income margin (NIM) of many banks was quite good. Hence, the liquidity risk for a higher profit margin was not too serious. However, the trend of borrowing and withdrawing money from the commercial banking system would increase faster than the source of income, thereby putting pressure on the liquidity of commercial banks. Therefore, Hoang said that in the next two years, from then, it would be an invaluable experience of liquidity that commercial banks, depending on their risk appetite, would have to control actively.