The State Bank of Vietnam (SBV) recently issued Circular 22/2019/TT-NHNN, which replaced Circular 36/2014 (and other amended Circulars), setting limits and prudential ratios of the bank.
According to the expert of SSI Securities Corporation (SSI), the new circular focused on two main changes, namely reducing the proportion of short-term capital used for medium and long-term loans (from the current 40 percent to 30%) and increasing the risk factor for consumer real estate lending, from the current 50 percent to a maximum ceiling of 150%.
Circular 22/2019 would take effect on January 1, 2020, with a transition period of six months.
Particularly in the case of adjusting the ratio of loan to deposit (LDR) at the maximum of 85 percent (currently at 90 percent for state-owned banks and 80 percent for private banks), the time of transition would be two years (before January 1, 2022).
Assessing the impact of adjusting the ratio of short-term capital to medium and long-term loans, SSI said that as of September 2019, listed banks in the study scope of SSI maintained the proportion of short capital for medium and long-term loans at an average of 31%. In particular, many banks had this rate below 30%. However, some banks still had this ratio higher than 35%, including HCM City Development Joint Stock Commercial Bank (HDBank) at 35.8%, Vietnam Technological and Commercial Joint-Stock Bank (Techcombank) at 36.1%, Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank) at 35%. SSI expected these banks to reduce this rate to below 35 percent by the end of next year.
Reportedly, 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, the rate had to fall to 34 percent a year and to 30 percent after the following year.
Regarding the adjustment of the risk factor for consumer real estate loans when calculating the capital adequacy ratio (CAR), the new circular stipulated that consumer real estate loans were worth from 1.5 billion dong up to 4 billion dong with 100 percent risk coefficient, while similar loans worth over 4 billion dong bearing 100 percent risk.
SSI noted that this CAR calculation would only apply to banks that had not yet met the capital adequacy ratio under Circular 41/2016 (Basel II). Banks that met Circular 41/2016 from January 1, 2020 would not apply this regulation.
The new deadline for the application of Circular 41/2016 to all banks had been delayed until January 1, 2023.
Currently, SBV had approved for 14 commercial banks to apply Basel II standards in business activities under Circular 41/2016/TT-NHNN, including Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), Asia Commercial Joint Stock Bank (ACB), Military Commercial Joint Stock Bank (MB), Techcombank, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank), HDBank, Tien Phong Commercial Joint Stock Bank (TPBank), Southeast Asia Commercial Joint Stock Bank (SeABank), Vietnam Maritime JointStock Commercial Bank (MSB), Viet Capital Commercial Joint Stock Bank (Viet Capital Bank), Orient Commercial Joint Stock Bank (OCB), Vietnam International Commercial Joint Stock Bank (VIB), Shinhan Bank Vietnam Limited (Shinhan Bank) and Vietnam Thuong Tin Commercial Joint Stock Bank (Vietbank).
Other banks such as Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) had confirmed they would start applying Basel II from 2020 after the new thriving capital raising issuance.
These 15 banks, accounting for 45 percent of the total credit market share in September 2019, would comply with Circular 41/2016 on how to calculate capital adequacy ratio (CAR) instead of Circular 22.
Accordingly, the risk coefficient of home loans and real estate mortgages would accurately reflect the level of risk based on the characteristics and structure of the loan, such as the ratio of loans to value (LTV), debt service coverage ratio (DSC), loan purpose, etc, therefore, would help SBV to better control the liquidity and the risk level of the banking system. If commercial banks did not collect enough information about LTV and DSC, the loan would apply a risk ratio of 200%.
As of September 2019, the CAR, according to Basel II of many listed banks, was higher than the minimum requirement of eight percent, thanks to capital raising activities in the past two years in the context of high profits.
Therefore, SSI believed that Circular 22 would not negatively affect home lending activities at these listed banks.
Instead, some listed banks with significant equity capital such as Techcombank could gain more market share for home loans from banks with smaller capital.
Regarding the adjustment of LDR, SSI emphasized that most listed banks had LDR ratios below 80%, excluding BIDV with 86 percent in September 2019.
The new regulation raised the ceiling from 80 percent previously to 85 percent for all banks, which would benefit joint-stock commercial banks. For state-owned banks, SSI estimated that BIDV would reduce this ratio to below 85 percent thanks to new capital raised in 2020.
