State Bank extends roadmap for ratio of short-term

Minh An

State Bank extends roadmap for ratio of short-term funds for long-term loans

The governor of the State Bank of Vietnam (SBV) recently issued Circular 08/2020/TTNHNN amending and supplementing a number of articles of Circular 22/2019/TT-NHNN dated 15 November 2019, primarily by stipulating the prudent limits and ratios in the operations of banks and foreign banks’ branches. The new circular will take effect from 01 October 2020.

Accordingly, banks and foreign banks’ branches are required to comply with regulations on the maximum ratio of short-term capital resources utilised for providing medium and long term loans. Specifically, these are set at 40 percent from 01 January 2020 until 30 September 2021; 37 percent from 01 October 2021 until 30 September 2022; 34 percent from 01 October 2020 until 30 September 2023; and 30 percent from 01 October 2023.

With the new circular, the State Bank of Vietnam has extended the roadmap of dropping off the short term capital proportion for medium and long term loans for a further year.

According to the circular drafting team, banks need to continue maintaining the proportion of short term capital in the capital mobilisation structure to reduce costs, enabling them to offer preferential interest rates for customers. Reducing the maximum proportion of short term capital used

for medium and long term loans in the first instance from 40 percent to 37 percent as stated in the new circular may lead to difficulties for banks’ in terms of their capital structure plan.

With the impact on production and business activities resulting from the pandemic, customers’ deposits at banks are expected to decrease. Therefore, in order to keep implementing preferential interest rate policies and maintain a stable medium- and long-term debt for customers, the SBV is considering delaying the roadmap for reducing the ratio short-term capital used for medium- and long-term loans. The delay of the roadmap of tightening the ratio of short-term capital sources used for medium and long-term lending is necessary to help credit institutions better support customers restoring their businesses after the pandemic.

The SBV has made amendments on the maximum ratio of short-term capital used for medium and long-term loans. Circular 36/2014 tightened the ratio to 60 percent, which has since been tightened to 45 percent before the most recent tightening to 40 percent as stated in Circular 22/2020.