Nguyen Hoang Minh, deputy director of the State Bank of Vietnam (SBV) Hochiminh city said that the credit growth target of the banking system this year is 15-18 percent, along with the expectation for credit quality improvement, liquidity stability maintenance and strict credit growth control, helping reduce the pressure on interest rate level.
According to Minh, the medium and long-term credit tends to increase higher than short-term credit. That reflects the stable outlook of the economy, requiring credit institutions (CIs) to develop risk prevention measures, expanding customer data base and completing the system of managing and recovering bad debts. However, the Circular 19/2017/TT-NHNN stipulates the gradual reduction of the use of short-term funds for medium and long-term loans, forcing banks to promote long-term mobilisation to restructure their capital sources.
Specifically, from January 1st 2018 to December 31st 2018, the maximum ratio for using short-term funds for medium and long-term lending of banks and foreign bank branches is 45 percent, and of non-bank CIs is 90 percent. From January 1st 2019 onwards, this ratio will be 40 percent for banks and foreign bank branches and remain unchanged for non-bank CIs.
That is also the reason why banks have to gradually lower their medium and long-term lending, particularly those that have reached the maximum limit. According to Orient Commercial Joint Stock Bank (OCB), the bank continues to shift the lending structure towards reducing medium and long-term loans, lowering the concentration in terms of industry and customer, promoting sales and diversifying non-interest products, bringing the proportion of non-interest income to 15 percent of the total net revenue.
Statistics of SBV by December 2017 showed that the ratio of using short-term funds for medium and long-term lending of the entire system was 30.65 percent, in which this ratio was 33.44 percent in the group of state-owned banks, 34.47 percent in the group of joint stock banks, and nearly 49 percent in the group of finance and financial leasing companies. Although this ratio has not reached the maximum limit, it has been close to the allowed ratio, and banks thus are making efforts to promote long-term capital mobilisation.
According to survey, up to 60 percent of customer prefer to deposit money on short terms and renew the deposits when they mature in order to prepare for extraordinary expenses without losing interests. Being aware of this psychology, banks are designing more savings products with higher liquidity to maintain market share. Many banks are offering corporate bonds and bond fund certificates with interest rates of up 8 percent per annum, in order to increase long-term capital mobilisation.
Although banks believe that the liquidity is always abundant, the competition in mobilising savings capital in fact has never been cooled down. That is why banks race to mobilise capital even when they carry out the policy to cut lending interest rates. For example, Vietnam Public Commercial Joint Stock Bank (PVcomBank) applies competitive interest rates of up to 7.9 percent per annum, Viet Capital Commercial Joint Stock Bank offers the highest interest rate of 8.5 percent per annum, and Saigon Thuong Tin Commercial Joint Stock Bank (Sacombank) issues deposit certificates with interest rates of up to 8.5 percent per annum, etc.
Meanwhile, banks said that although their liquidity remains excessive, they are still competing fiercely in mobilising capital, particularly small and medium-scaled banks, in order to restructure the capital sources as required in Circular 19/2017/TT-NHNN and to prepare the sources to seize the opportunities when lending tends to increase and real estate market is warming up.
On the other hand, with the expectation for higher credit growth this year and as many banks have used half of the credit growth limit assigned in the beginning of the year, numerous banks have spent several billion dong on gifts and promotions in order to attract idle capital and be ahead of the capital demand which is expected to rise sharply in the end of the year.
Along with the regulation of liquidity, SBV has directed CIs to continue cutting operating costs and enhance business efficiency, making the basis for striving to reduce lending rates. According to finance and banking expert Huynh Trung Minh, the extension of the time to apply the ratio for using short-term funds for medium and long-term lending shows the flexibility in operation of SBV, but tightening safety ratios to ensure sustainable banking activities remains SBV’s target.
