The ratio of short-term deposits to long-term loans was first mentioned in Decision 297/1999 of the State Bank. Since that time, this ratio requirement has been adjusted many times.
At the beginning, this ratio was determined at 20%, later it was changed to 30% in 2009.
In 2013, some banks proposed to ease this requirement as they faced difficulties in lending activities and the demand for mid-term and long-term loan remained high. Then, the Circular 36/2014 was issued to increase this ratio to 60%, effective February 2015.
Customers at HDBank.
One year later, the State Bank again issued a new requirement which governed that banks reduce this ratio to 50% in 2017, 40% in 2018. One more time, the State Bank revised that banks keep it below 45% in 2018 and 40% in 2019. Now, in the latest issuance, it proposes to control this ratio under 30% for next 2-3 years.
The State Bank bases these decisions on the banking system liquidity and adjusts the ratio requirement. When banks are good at raising funds from clients’ deposits and bad at lending, the State Bank will increase this ratio.
After a long period of strong growth, the credit growth currently is moving at a more stable rate. This is a good time for the State Bank to think about solutions to maintaining a sustainable growth rate.
However, the credit, especially mid-term and long-term credit has hugely impacted the operations of many sectors, including banks; hence change in banking policies will create different and diverse feedback.
Difficulties of banks
The pressure of banks to fund capital for the whole economy in short-term, mid-term and long-term has been reducing as the growth of stock market and other channels.
The deposit structure in banks has been changing over time; however the main funding source is still short term deposit.
Looking at the financial statements of banks in Q1/2019 we see that the mid-term and long-term loans were in a majority. The outstanding loan of VIB was VND 101,904bn, in which VND 85,401bn was of mid-and-long term loan, and constituted 83.8% of total loan. SeABank’s total loan and mid-and-long term loan were at VND 87,500bn and 64,153bn (75.48%), respectively. At OCB, the mid-and-long term loan of VND 42,191bn contributed 73.21% to total bank loan of VND 61,120bn. This ratio was 62.73% at Techcombank, 66.93% at VPBank, and 59% at HSB. Among the banks which had low mid-and-long term loan ratio were Vietcombank (45%), VietinBank (44.13%) and BIDV (37.41%).
Based on the lending structure we find that banks are still focusing on mid-and-long term lending. It is easy to understand as the lending interest rate for short term is just 6-9% while for long term it is 9-11%. Having higher profit and more stable clients are advantages in long term loans.
According to the State Bank, the lower the ratio of short-term deposits to the long-term loans, the more stable the banking system. However, to meet the State Bank’s requirement, banks have to increase its tier 1 capital and raise more mid-and-long term deposits.
The long-term deposit rate at some banks increases to over 8%/year while the bond interest rate rises to 9%/year. Higher input cost impacts output price. According to banks’ calculation, if the deposit rate is 8%, the total input cost (after including operating cost) will be around 12%. Then, to make profit, banks have to lend out at least 13-14%/year.
Banks are practically functioning to supply towards short term capital, while security market has to supply mid-and-long term capital for enterprises. To resolve this problem, banks should raise their chartered capital which will bring long-term and low interest funds for lending. Banks can also borrow from the State Bank, or approach the international subsidized funds for lending.
| According to Dr. Tran Du Lich, some banks have been increasing their 13-month deposit rate; however, it is just a short-term solution as to make it a mid-and-long term source banks have to raise funds over a 3-year term.