Recently, commercial banks in Vietnam had been continuously receiving new policies from the State Bank of Vietnam (SBV) with many fundamental changes, directly affecting the bank’s business activities.
The first to be mentioned was the decision to lower the interest rate ceiling of both the mobilising and lending dimensions in market one, which was the market of economic organisations and people but excluding credit institutions.
Accordingly, the maximum interest rate applicable to demand deposits and terms of less than one month decreased from one percent per year to 0.8 percent per year. The maximum interest rate applicable to term deposits from one month to less than six months reduced from 5.5 percent per year to five percent per year.
The credit institution set the interest rate for deposits with terms of six months or more based on market capital supply and demand.
Along with that, SBV also lowered the maximum short-term lending interest rate in dong for capital serving agriculture, rural areas, exports, supporting industries, small and medium-sized enterprises, and high technology applications from 6.5 percent per year to six percent per year.
Theoretically, lowering the ceiling interest rate caused the current deposit interest rate reaching the ceiling to flow into banks with fewer risks (usually from small banks to large banks) because the interest rates received were the same.
Part of the cash would flow to the longer term which was currently not adjusted by the interest rate ceiling.
Most notably, the cash would also flow from the banking channel to other investment channels because interest rates on deposits were less attractive.
In general, lowering the ceiling interest rate would put pressure on capital mobilisation on most banks, in which the smaller the bank, the higher the pressure.
VietnamFinance’s calculation showed that some banks would be under pressure to raise capital more than others due to the high ratio of loan to deposit (LDR) in market one, such as Saigon Bank for Industry and Trade (Saigonbank), Kien Long Commercial JointStock Bank (Kienlongbank), Saigon Hanoi Commercial Joint Stock Bank (SHB), Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank), Orient Commercial Joint Stock Bank (OCB), HCM City Development Joint Stock Commercial Bank (HDBank), Southeast Asia Commercial Joint Stock Bank (SeABank), Vietnam International Commercial Joint Stock Bank (VIB), Tien Phong Commercial Joint Stock Bank (TPBank).
Another policy that had a direct impact on banks was Circular 22/2019/TT-NHNN that replaced Circular 36/2014 (and other related Revisions), setting limits and ratios ensuring safe operation of the bank.
This Circular had three salient points, which was tightening the ratio of short-term capital for medium and long-term loans, raising the risk ratio for high-value home loans, and adjusting the LDR ratio.
Accordingly, banks would have to bring the ratio of short-term capital for medium and long-term loans to 37 percent from October 1, 2020, then continue to fall to 34 percent a year later and to 30 percent after the following year.
Statistics showed that many banks had brought the ratio of short-term capital for medium and long-term loans to nearly 30%, even some banks had brought the rate to less than 30%, such as Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), TPBank, VIB.
However, some banks still kept this ratio at a relatively high level, like Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) at 36.1%, HDBank at 35.8%, or LienVietPostBank at 35%.
Regarding raising the risk ratio for high-value home loans, on the one hand, this regulation would affect reducing the capital adequacy ratio (CAR) of banks with loan portfolios of buying a large house. On the other hand, this would also create an opportunity for banks with high CAR to take the market share of home loans of banks having low CAR, because the lower the CAR, the less capacity to lend for buying high-value houses.
Reportedly, Circular 22 stipulated that real estate consumer loans worth between 1.5 billion dong and 4 billion dong were subject to a 100 percent risk coefficient, while similar loans with a value of over 4 billion dong were subject to a risk ratio of 150 percent (instead of both at 50 percent as before).
The LDR ceiling of state-owned commercial banks would be lowered from the current 90 percent to 85%, while the private banks would be raised from 80 percent to 85%.
The increased ceiling of LDR gave private banks more capacity to reduce the proportion of cost of capital to total credit revenue by lowering the increase in total deposits. In contrast, the space for lowering the portion of the capital costs of state-owned commercial banks would be narrowed, possibly even increasing the percentage of capital costs in total credit revenue.
Not long before promulgating Circular 22, SBV issued Circular 18/2019/TT-NHNN amending Circular 43/2016/TT-NHNN regulating consumer lending by financial companies.
Circular 18 aimed to gradually reduce the proportion of debit balance directly disbursed to customers compared to the total balance of 30%. However, this regulation only applied to customers with an entire direct loan balance of more than 20 million dong.
The roadmap to reduce total debit balance directly disbursed to customers for financial companies lasted for a period of four years, from 2021 to 2024. In particular, this ratio was at a maximum of 70 percent in 2021, 60 percent in 2022, 50 percent in 2023 and 30 percent from January 1, 2024.
The three listed banks with subsidiaries or affiliated companies were consumer finance companies, including VPBank (100 percent owned VPBank Finance Company LimitedFE Credit), HD Bank (50 percent owned at HD SAISON Finance Company LimitedHDSaison), and Military Commercial Joint Stock Bank (MB) (50 percent owned MB Shinsei Finance Company LimitedMCredit). The market shares of these three financial companies at the end of Q2/2019 were 55%, 17%, and seven percent respectively.
According to the SSI Securities Corporation (SSI), of those, FE Credit was still the company most affected. FE Credit had a loan structure that focused heavily on cash loans. The product structure included 76 percent for cash loans, eight percent for motorbike loans, 4.7 percent for electronics loans and 11.4 percent for credit card loans.
However, the ratio of cash loans to customers with total debit balance of over 20 million dong was currently below 70%.
Therefore, in the next two years (2020 and 2021), the impact would be low because the roadmap had not yet profoundly affected FE Credit’s business activities. However, from 2022 to 2024, FE Credit may partly sacrifice net interest margin (NIM) to achieve a more balanced loan portfolio structure, emphasized SSI experts.
Meanwhile, HDSaison would be the least affected by the low proportion of cash loans, only 33%.
For MCredit, although the cash loan rate in total debit balance was about 70%, restructuring of productportfolio might be easier because the scale was still modest.
Besides, another circular affecting a few commercial banks was Circular 58/2019/TT-BTC regulating the management and use of accounts of the State Treasury opened at SBV and commercial banks, which took effect from November 1, 2019.
Posting on his network account, Associate Professor and Doctor Pham The Anh, Head of Department of Macroeconomics, National Economics University (NEU) said that in recent years, the process of disbursing public investment had been prolonged. The idle amount of the State Treasury averaged over 200 trillion dong.
This source of low-price money was of great benefit to commercial banks having accounts at the State Treasury, mainly state-owned commercial banks.
According to Circular 58, this money was collected into a single account of the State Treasury located at the SBV’s Transaction Office.
Also, the tax revenue previously kept in the State Treasury’s collection or payment accounts at commercial banks could be up to several weeks (without interest), then at the end of the day must all be transferred to the account of SBV.
In general, this circular mainly affected state-owned commercial banks, which were the familiar deposit addresses of cash flows from the State Treasury.
