Among many safety indicators in the banking industry, the Loan-to-Deposit (LDR) ratio is one of the most important indicators.
Normally, the higher the LDR is, the greater profit the banks achieve, but the higher liquidity risk is. Credit is considered the least flexible asset among the bank’s profitable assets but it is the main profitable asset. LDR increases, the capacity to reduce the risk of bank run will decrease accordingly.
According to the latest data from the State Bank of Vietnam (SBV), by the end of December 2018, the LDR in commercial banks reached 93.28%, while LDR in joint stock commercial banks was 84.65%. If compared with regulations (LDR of state-owned commercial banks is maximum 90%, LDR of joint-stock commercial banks up to 80%), the above two figures are far ahead.
Another point is also worth noting that according to VietnamFinance’s observation, the LDR of the joint stock commercial banks as of December 2018 reached the highest level ever. While LDR in state-owned commercial banks has exceeded 90 percent for a long time, in joint-stock commercial banks, the excess of 80 percent only took place two years ago (December 2016). However, since then, LDR of joint-stock commercial banks has increased rapidly and is now even higher than the safe level and than the group of state-owned commercial banks.
Specifically, according to the temporary calculation of VietnamFinance, in the group of state-owned commercial banks, Vietnam Joint Stock Commercial Bank of Industry and Trade (VietinBank) is the bank with the highest LDR, followed by Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV), Vietnam Bank for Agriculture and Rural Development (Agribank). In Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank), this bank’s LDR is much lower. However, Vietcombank is a bank that has a high profitability rate compared to other banks. The reason is that LDR is just one of many indicators reflecting profitability and safety. If credit quality is good, non-interest income is high, profit margin of credit is high, despite low LDR, profitability ratio is still high; and vice versa.
Considering the group of joint stock commercial banks, small and medium sized banks such as Vietnam International Joint Stock Commercial Bank (VIB) and Kien Long Joint Stock Commercial Bank (Kien Long Bank) are leading in the ratio of LDR, followed by Tien Phong Joint Stock Commercial Bank (TPBank) and Petrolimex Group Joint Stock Commercial Bank (PGBank).
In general, LDR in commercial joint stock banks is at modest level, including Military Joint Stock Commercial Bank (MB), Vietnam Prosperity Joint Stock Commercial Bank (VPBank), LienViet Post Joint Stock Commercial Bank (LienVietPostBank), Viet A Joint Stock Commercial Bank (VietABank), Vietnam Joint Stock Export Import Bank (Eximbank), Saigon-Hanoi Joint Stock Commercial Bank (SHB), Bac A Joint Stock Commercial Bank (BacABank), Viet Capital Joint Stock Commercial Bank (VietCapital Bank).
As mentioned, the higher LDR leads to the higher liquidity risk. However, it should be noted that low LDR does not mean that banks are safe, because safety is not only reflected in liquidity risk but also in other types of risks such as credit quality, forward risk.
For example, in the case of Saigon Joint Stock Commercial Bank (SCB), this bank has real bad debt (including internal bad debts, off-balance-bad bad debts and potential bad debts), which are among the highest level in the banking system. Its LDR is low, showing that the bank’s profitability is poor due to not optimising deposits and lending. The case of Saigon Thuong Tin Joint Stock Commercial Bank (Sacombank) and National Citizen Bank (NCB) is similar, though the situation is better than SCB.
Vietnam Technological and Commercial Joint Stock Bank (Techcombank)’s case is quite special. The LDR of this bank is low because a large amount of credit outstanding is not lending to customers but corporate bondsthere is even higher risk than customer loans but higher profit margins (Total lending used to calculate LDR according to Circular 36/2014/ TT-NHNN does not mention securities, including corporate bonds). Techcombank is currently one of the banks with the highest profit margin of the system.
