Currently, in many commercial banks, the proportion of medium and long-term loan accounts for over 50 percent of the total mobilised capital. Therefore, in order to carry out the orientation of the State Bank of Vietnam (SBV), to reduce the ratio of short-term capital used for medium and long-term loan within the next two to three years to 30%, many banks believe that this pressure is huge and need to mobilise many other long-term sources to replace.
Regulations on the limit of the rate of using short-term for medium and long-term loans are first mentioned in the Decision 297/1999 of SBV. So far, this rate has been changed many times.
Initially, commercial banks were allowed to apply 20%, then allowed to adjust to 30 percent in 2003, in 2005 increased to 40 percent and decreased to 30 percent in 2009. By 2013, many banks proposed to widen this ratio because credit output faced many difficulties and high demand for medium and long-term loans.
In Circular 36/2014, SBV loosened this rate to 60%, implemented from February 2015. More than one year later, the new roadmap was introduced, banks were applied 60 percent in 2016, 50 percent in 2017 and from 2018 to 40%. Immediately after that, the SBV adjusted the rate to 45 percent and from 2019 to 40%. Recently, SBV consulted on two options to reduce this rate to 30 percent in the next two to three years.
Each time, SBV adjusted the above ratio based on the liquidity of banks. SBV increased this rate sharply when commercial banks successfully mobilised but froze credit loans. After a strong growth period to support economic growth, credit loans were gradually becoming stable with a relatively low increase. This was also a good time for SBV to consider sustainability and ensure the safety for the system.
Every time SBV changes policies, there are always conflicting opinions because credit, especially medium and long-term credit, has a great impact on the development of many sectors, including banks. For example, HCM City City Real Estate Association (HoREA) repeatedly proposed loosening the deadline of this rate whenever there is a policy of reduction.
Currently, the pressure of commercial banks for the economy of both short-term, medium-term and long-term loans has decreased, as many businesses mobilise capital through the stock market or other channels. However, the majority of mobilised capital remains concentrated in short term capital.
Looking at the financial statements of many banks in Q1/2019, medium and long-term loans still dominated. Among Vietnam International Joint Stock Commercial Bank (VIB)’s total outstanding loans of 101.904 trillion dong, there were 85.401 trillion dong of medium and long-term debts, accounting for 83.8%. Southeast Asia Joint Stock Commercial Bank (SeABank) had total outstanding loans of nearly 85.7 trillion dong, medium and long-term debts of 64.153 trillion dong, accounting for 75.48%. At Orient Joint Stock Commercial Bank (OCB), medium and long-term loan capital was 42.191 trillion dong out of 61.12 trillion dong (73.21%). Medium and long-term outstanding loans were also high in Vietnam Technological and Commercial Joint Stock Bank (Techcombank) (62.73%), Vietnam Prosperity Joint Stock Commercial Bank (VPBank) (66.93%), Vietnam Prosperity Joint Stock Commercial Bank (VPBank) (59%). This rate is lower in commercial banks with state capital such as Joint Stock Commercial Bank for Foreign Trade of Vietnam (Vietcombank) (45%), Vietnam Joint Stock Commercial Bank of Industry and Trade (Vietinbank) (44.13%) and Joint Stock Commercial Bank for Investment and Development of Vietnam (BIDV) (37.41%).
Based on the loan structure, it could be seen that banks still gave priority to these loans. It was easy to understand because short-term lending interest rate in dong was popular at six to nine percent per year, while medium and long-term lending rate was nine to 11 percent per year. Higher profit margin and long-term stable borrower were the biggest advantage of medium and long-term loans.
According to the orientation of SBV, the lower the ratio of short-term capital used for medium and long-term loan, the higher the stability and safety. In order to meet the requirements, the level one capital of banks must be better; mobilisation must also ensure more medium and long-term capital. This was very difficult.
In recent years, commercial banks continuously increased long-term deposit interest rates, issued deposit and bond certificates. This was the solution to restructure the loan term. However, there was competition among banks, this form of mobilisation pushed up interest rate.
For example, long-term deposit rates of many banks increased by more than eight percent per year, the rate of certificates of deposit and bonds were also approximately nine percent per year. High input costs affected the output. A calculation showed that the input interest rate was 8 percent but according to the regulation, the bank only allowed to lend 90 percent of the mobilised capital, plus the operational cost and risk provision, the cost of capital increased up to 12%. To have profit, banks had to lend 13-14 percent per year.
The principle is that commercial banks only provide short-term capital; the stock market provides medium and long-term capital. In order to solve this problem, banks should carry out solutions to increase charter capital, thereby having safe and cheaper medium and long-term capital for lending. Or banks could use other forms such as borrowing from SBV, borrowing from foreign countries, accessing trust-funding sources of international organisations providing loans.
