The State Bank of Vietnam (SBV) has recently issued Circular 22/2019/TT-NHNN regulating safety limits and ratios in banking operations to replace Circular 36/2014/TT-NHNN.
Accordingly, from January 1st 2020, the Lending to Deposit Ratio (LDR) applied to all banks is 85%. Meanwhile, under the current regulation, the LDR for the group of state-owned banks is 90%, and only 80 percent for private joint stock banks, joint venture banks and banks with 100 percent foreign capital. Thus, the LDR of state-owned banks will be cut by five percent and this amount is transferred to private joint stock banks and 100 percent foreign-owned banks.
According to banking experts, this decision will further enhance the credit supply capacity of private joint stock banks and foreign banks, while tighten the ability of state-owned banks.
An expert said that this decision of the SBV is a reasonable move, because it will contribute to ensuring the fairness of business types in accordance with the direction of the government as well as international commitments. Moreover, although state-owned banks are given a fairly large credit supply limits with LDR of up to 90%, their capital supply ability is limited by the capital adequacy ratio under Basel II standards when state-owned banks are facing numerous difficulties in raising capital. “This change will enhance the credit supply capacity of private joint stock and foreign banks, thereby ensuring the credit supply ability of the entire system,” said the expert.
Will total credit increase?
Analyst of KB Vietnam Securities Company (KBVS) Thai Thi Viet Trinh said that state-owned banks, especially banks that have not met Basel II standards, will be affected by the above Circular. It means that the room for credit expansion of these banks in 2020 will not be much.
“The SBV has made a more objective assessment of the credit activities of private joint stock banks. Especially, banks that have met Basel II standards will benefit the most,” Trinh emphasized, adding that in adding to the possibility of having more credit growth room in 2020, the relaxation of LDR will help private joint stock banks such as Asia Commercial Joint Stock Bank (ACB), Military Commercial Joint Stock Bank (MBB), HCM City Development Commercial Joint Stock Bank (HDB), Tien Phong Commercial Joint Stock Bank (TPB), etc. will have more opportunities to further boost credit.
Trinh also said that the total outstanding loans of the whole system will not change much due to the opposite adjustment to the LDR ratios in the groups of state-owned banks and private joint stock banks. “The amount of potential outstanding loans limited in the group of state-owned banks will be equivalent to the potential outstanding loans that may increase in the group of private joint stock banks, said Trinh.
However, according to the above banking expert, the total outstanding loans of the entire system will increase after this decision if banks fully exploit their allowed limit.
Citing that the total assets of private, joint venture and foreign banks reach more than 6,130 trillion dong, much higher than the 5,120 trillion dong of state-owned banks, the expert said that the mobilisation fund of this group will be much higher than state-owned banks’. Thus, the five percent increase in LDR of private, joint venture and foreign banks will surely larger than the five percent decrease in LDR of state-owned banks,
“The current LDR of joint venture and foreign banks is currently just 65.72%, which means that this group has room to expand credit by more than 19%. Therefore, it they make good exploitation, the total outstanding credit to the economy will increase higher than the current level, although the mobilisation fund does not rise,” said the expert.
Certainly, when the credit supply capacity of the banking system increases, the access to credit of businesses will be more favourable.
