The proposed amendments to tighten existing regulations on bank liquidity and lending are credit positive for Vietnamese banks, said credit ratings agency Moody’s Investors Service in its recent Credit Outlook report.
Earlier this month, the State Bank of Vietnam held a public consultation on proposed amendments to its regulations on asset and liability management, mortgages and unsecured consumer loans.
The proposed changes include tightening the maximum ratio of short-term funds used for medium- and long-term loans, as well as increasing risk weights on mortgage loans and unsecured retail loans.
The new asset and liability management rule will reduce banks’ maturity mismatches by requiring them to lower the maximum ratio of short-term funding used for medium- and long-term loans.
As a result, according to Moody’s, banks with a larger proportion of medium- and long-term loans will either have to rebalance their loan portfolios toward short-term loans or raise more expensive longer-term funding to meet the proposed new rule.
Among its rated Vietnamese banks, the ratings agency expects the new rules to have the greatest effect on the Vietnam International Bank (VIB) and the Vietnam Prosperity Joint Stock Commercial Bank, given their larger proportions of medium- and long-term loans as of late 2018.
However, the effect will be manageable for the banks given the gradual phase-in of the new rules.
The central bank has also suggested increasing the risk weights for certain categories of mortgages and unsecured consumer loans. Moody’s sees the demand for retail loans in recent years as moving in tandem with the greater urbanisation rate and higher income per capita in Vietnam; retail loans have been the key driver of banks’ loan growth since 2015.
The higher risk weights will compel banks to be more selective in their lending to the retail segment and in building up their loss-absorption buffers. Moody’s predicts that the profitability of local banks will fall in 2019 as they adjust to the new rules.
It also expects VIB, the Tien Phong Commercial Joint Stock Bank and the Bank for Foreign Trade of Vietnam to be most affected by the higher risk weights because of their sizable mortgage loan portfolios and moderate capitalisation relative to their peers.
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