Impact of reducing the ratio of short-term loans to medium and long-term loans from 1.10

According to the roadmap in Circular 08/2020/TT-NHNN, banks will have to reduce the maximum ratio of short-term capital for medium and long-term loans to 30% instead of 34% as at present. The regulation starts from October 1, 20203.

Commenting on this issue, in a recent analysis report, KB Securities Vietnam (KBSV) said that banks' reduction of the ratio will have certain impacts on banks.

According to a report by the State Bank of Vietnam (SBV), up to 88% of banks' mobilized capital is deposits under 12 months, but 52% of the system's outstanding credit is medium and long-term.

As of July 2023, all banks have met the maximum ratio of short-term capital used for medium and long-term lending of 34% (applied from October 1, 2022 to September 30, 2023). Accordingly, this ratio remains at 32.66% for the group of joint-stock commercial banks, higher than the group of state-owned commercial banks (24.97%). Considering the whole system, the ratio of short-term capital for medium and long-term lending is 26.14%.

According to KBSV's analysis team, in the short term, lowering the ratio of short-term capital for medium and long-term loans will slow down the process of reducing long-term lending interest rates of banks in the context of the economy needing support for economic growth. At the same time, the new circular will also partly put pressure on banks' demand for long-term mobilization, increasing banks' capital costs, and causing pressure to narrow net interest margins (NIM).

In the long term, with the policy of improving credit activities and ensuring liquidity for the banking system, the application of new regulations is expected to help banks better control liquidity risks, stabilize operations in the face of domestic and foreign changes, and promote sustainable economic development.

KBSV believes that Circular 08, which is about to take effect, is partly a driving force for banks to buy back bonds before maturity and focus on issuing long-term bonds in the coming time, in addition to the driving force from the interest rate level which has decreased relatively compared to the previous period.

Accordingly, there are a few banks such as Vietcombank and HDBank, whose short-term capital ratio for medium and long-term loans is less than 10%, so they are almost unaffected by this new roadmap.

Source