Banks baulk at strict rules in SBV’s Circular 36

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In February, the State Bank of Vietnam (SBV) announced that it would revise Circular 36/2014/NHNN, which aims to increase banks’ liquidity and prevent excessive lending to the real estate sector. In particular, the SBV proposed that banks should only use 40 per cent of their short-term funds for mid- to long-term lending, compared to the current permitted amount of 60 per cent. The revised version will take effect on January 1, 2017.

In response, banks complained that this new rule would negatively affect their business. According to Phan Duc Tu, CEO of BIDV, depositors often choose short-term tenors, making it challenging for banks to attract long-term deposits. To attract deposits that are longer than 12 months, various banks have edged up their depository rates by 0.2 to 0.4 per cent for the past two months. However, this has been met with little success as customers still prefer short-term deposits.

“Banks mobilise the majority of their deposits for loans, so limiting the amount of short-term funds used for mid- to long-term loans will affect our lending capacity in the long run,” said Tu.

Other banks noted that the draft revision of Circular 36 classifies12-month deposits as “short-term”, while this tenor is currently considered “medium term”. The new definition will further restrict banks’ lending ability, especially when it is combined with the proposed reduction on using short-term funds for loans.

Economic expert Can Van Luc suggested that the SBV should allocate a longer preparation time for banks, and delay the implementation of Circular 36 until a later date. During this period, banks can use different methods to restructure their deposits.

“Firstly, banks can hike depository rates, as they’ve already done. Secondly, they can borrow funds from other financial institutions and thirdly, banks can issue long-term bonds to investors,” said Luc. However, he warned that a surge in interbank and depository rates may make it hard for banks to lower their lending rates.

Meanwhile, analysts from Ho Chi Minh Securities Corporation pointed out in their recent report that the SBV may need to delay Circular 36 to make way for its easing policies in 2016.

“The SBV aims to reduce lending rates to help struggling firms and set the credit growth target at between 18 and 20 per cent this year. It’s usually difficult for the government to carry out monetary easing and tighten the laws at the same time. As a result, it seems that to achieve credit growth goals in 2016, the SBV may have to put tightening rules such as Circular 36 and Basel II on hold,” noted the analysts.