The roadmap to reduce the ratio of short-term capital for medium-long-term loans to limit risks for the banking system had been applied years ago. However, due to the Covid-19 outbreak, the recent move to extend the application route was considered to be certain.
Talkable numbers
At Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), though the ratio of medium long term credit to total balance at the end of June still maintained at 47.7 percent as of the end of 2019, the absolute balance of medium long term loans had increased from 17.548 trillion dong to 367.899 trillion dong.
Not only Vietcombank, but many other listed banks were also in the same situation. For example, Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) had a medium-long-term debt balance of 176.197 trillion dong (increased by 8.248 trillion dong), accounting for 65.2 percent (0.1 percent higher). Military Commercial Joint Stock Bank (MB) had outstanding loans of 131.020 trillion dong (rising by 2.287 trillion dong) and with the proportion of 50 percent (up 1%). Vietnam International Commercial Joint Stock Bank (VIB) had outstanding loans of 93.727 trillion dong (increased by 4.588 trillion dong) with a weight of 68 percent (down one percent). HCM City Development Joint Stock Commercial Bank (HDBank) had a total balance of 71.953 trillion dong (increased by 4.891 trillion dong) with a proportion of 45 percent (down 1%).
Even in many banks, medium long term credit increased rapidly in both absolute value and proportion. For example, Saigon Hanoi Commercial Joint Stock Bank (SHB) had medium long term debt balance of 181.365 trillion dong (rose by 21.639 trillion dong) with a weight of 63.1 percent (up 2.9%); Lien Viet Post Joint Stock Commercial Bank (LienVietPostBank) had a loan balance of 110.162 trillion dong (up 12.788 trillion dong), of which the proportion was 72 percent (up 2.7%).
Sharing with the Securities Investment Newspaper, leaders of some banks said that the outbreak of the Covid-19 epidemic caused many difficulties for production and business activities, thereby affecting the ability of customers to repay debts.
All banks stepped up to restructure the repayment period to support customers according to Circular 01/2020/TT-NHNN, so many loans from customers were restructured and extended, said Trinh Thi Thanh, Acting director of Financial Administration Division and SCB’s funding source. When a short-term loan was extended, resulting in a total repayment period of more than 12 months, it would be classified as a medium-term loan.
According to statistics of the State Bank of Vietnam (SBV), as of June 22, 2020, credit institutions had restructured repayment terms for more than 258,000 customers with outstanding loans of nearly 177 trillion dong. That was not to mention when banks were still making efforts to refill capital for businesses, including medium long term loans. The old debt had not been recovered, while the increase in new debt had raised the medium long term debt balance, a leader of a joint-stock bank said.
Extend the route for one more year
According to the provisions of Circular 22/2019/TT-NHNN on limits and prudential ratios in the operations of banks and foreign bank branches, from October 1, 2020, the majority of short-term funds used for medium-long-term loans of banks would decrease to 37%, instead of 40 percent as currently.
Perhaps due to concerns that the medium-long-term credit balance was tending to increase rapidly in the first months of the year, would affect the compliance of banks, SBV had issued a draft of the Circular to amend and supplement some articles of Circular 22, including consideration of delaying the application of the maximum rate of short-term capital used for medium-long-term loans with two options, either six months or 12 months.
According to SBV, the extension of the application period was to create conditions for credit institutions to better support borrowers to restore production and business after the epidemic. In fact, the use of short-term capital for medium-long-term loans could bring a great source of income for banks because the interest expenses on these funds were low.
Nevertheless, if banks used too much short-term capital for medium-long-term loans, it would negatively affect credit activities, cause an imbalance in capital structure, increase bad debts, and so on. Therefore, with a policy of good to strengthen credit activities and ensure liquidity for the banking system, the roadmap to tighten the ratio of short-term capital for medium-long-term loans had been studied and gradually decreased over the years.
According to experts, the above move of SBV was appropriate in the current context, because if the regulator did not extend the application route, it might increase the pressure on banks to mobilise capital, thereby creating pressures to increase deposit rates, followed by lending interest rates.
In a recently released report, KB Vietnam Securities Company stated that deposit interest rates would increase slightly in the second half of 2020 when credit growth was expected to recover and the roadmap to tighten deposit rates the short-term medium-long-term loans taking effect in October 2020 could boost competition in deposits and reverse the current trend of declining deposit rates.
The fact also showed that before the ratio of short-term capital for medium-long-term loans was reduced to 40 percent from the beginning of 2019, the end of May 2018 saw a race to mobilise medium long term capital, pushing the interest rates up. Many banks even issued valuable papers with sky-high interest rates. Therefore, many experts worried that the above situation would happen again if they continued to tighten the ratio of short-term capital for medium-long-term loans while the medium-long-term debt balance tended to increase rapidly in the first months of the years.
SBV’s consideration of extending the roadmap so as not to affect the interest rate level, as well as creating conditions for banks to be more active in rescheduling debt repayment terms to support businesses and support the economy to recover after the epidemic, was completely reasonable, Nguyen Tri Hieu, an economist, said.
It was known that, on the afternoon of August 14, Circular 08/2020/TT-NHNN was signed and approved by the SBV deputy Governor Doan Thai Son, in which the notable content was to extend the application roadmap for another 12 months.
