Unlike many other countries, in Vietnam, the banking system still has to play the main role in providing medium and long-term capital to the economy due to the underdeveloped capital market. On the other hand, the trend and strategy to promote retail credit, particularly the boom of home and automobile consumer loans (long-term loans) to have higher profit margins as well as to jointly develop cross-selling services, are also additional reasons.
The large proportion of medium and long-term loans has potential risks to the liquidity of the banking system, especially in the context when the proportion of short-term deposits still account for the main part in the structure of mobilised capital in general.
A survey at 22 commercial banks at the end of September 2019 showed that 13 members (equivalent to 59.1%) have more than 50 percent of medium and long-term loans in their structure of total loans. Notably, the proportion of medium and long-term loans of private joint stock banks is much higher than that of state-owned banks’. This also reflects the risk appetite among bank groups.
As at Vietnam International Commercial Joint Stock Bank (VIB), by the end of September 2019, the bank had more than 101 trillion dong of medium and long-term loans of the total 123 trillion dong of total loans, equivalent to a more than 82.32 percent proportion. This number was 68.92 percent at Orient Commercial Joint Stock Bank (OCB), and 64.91 percent at Vietnam Prosperity Commercial Joint Stock Bank (VPBank).
Meanwhile, in the opposite direction, the group of state-owned banks is in the bottom with the ratio of medium and long-term loans on total outstanding credit being much lower than the average ratio of the surveyed banks.
Specifically, by the end of the third quarter of 2019, the total outstanding loans of Commercial Joint Stock Bank for Foreign Trade of Vietnam (Vietcombank) were over 708 trillion dong, up by 12 percent compared to the beginning of the year. Of which, the medium and long-term loans were more than 335 trillion dong, up by 16 percent over the beginning of the year, and only accounted for 47.38 percent of the total outstanding loans. Similarly, this ratio was 43 percent at Commercial Joint Stock Bank for Industry and Trade of Vietnam (VietinBank) and 37 percent at Commercial Joint Stock Bank for Investment and Development of Vietnam (BIDV).
Reported data also showed that compared to the beginning of the year, 14 out of 22 banks (equivalent to 63.6%) had lowered the proportion of medium and long-term loans. However, this ratio have shown signs of rising again when up to 14 members have increased the value of medium and long-term loans compared to the previous quarter by 0.1 to 2.86 percentage points compared to the end of June 2019.
This partly explains why numerous banks have quickly and significantly adjusted the mobilisation interest rates in dong on some long terms or launched promotional savings programmes, and issued certificates of deposits and bonds at high interest rates since July 2019.
Regarding this interest rate development, the State Bank of Vietnam (SBV) once gave warning that it could pose risks to the stability and healthy development of the banking system and create negative psychology in the market, possibly leading to a race in mobilisation interest rates among credit institutions and destabilising the capital market.
Accordingly, the management authority said to strictly handle violations, including the use of measures to narrow credit growth target of the credit institution which violates.
Until now, the mobilisation interest rate race has temporarily cooled down, and the market has even recorded interest rates falling by 0.1 to 0.3 percentage point at some banks.
However, as mentioned above, since the capital market is not yet developed, businesses are largely dependent on bank credit. In addition, the demand for medium and long-term personal loans in Vietnam has started to develop strongly in recent years. This makes it difficult for lending rates, especially long-term ones, decline in the near future.
