Credit firms set to throw off shackles more room to move

Domestic banks may soon have more money to lend

According to the draft, which is expected to be launched by end of this year, local banks will soon be permitted to use up to 60 per cent of short term borrowings to finance medium- and long-term loans instead of just 30 per cent as is currently required.
However, to be eligible for such conditions banks must meet two criteria: the weekly deficit between assets and liabilities may not exceed 5 per cent and the ratio between liquidity assets over liabilities which fall due within the month must be at least 25 per cent.
Those banks that cannot meet either of the above two criteria may not use any short term deposits to fund medium and long term credit.
Kieu Huu Dung, head of the bank and non-bank credit institutions department of the State Bank, told Vietnam Investment Review that to a certain extent, the new regulation would give local banks more resources to meet capital demands for medium and long term credits because banks can use a higher ratio of short term sources for long term use.
“But that is only true for strong and capable banks with adequate ratio of assets over liabilities,” Dung said.
“For poorly performing banks, this regulation is indeed more tight. The current regulation allows all banks to use short term borrowings to finance medium and long term lending at maximum 30 per cent with no conditions attached.”
Dung added, however, that the ultimate aim of the change is not to give more flexibility to banks, it is merely a move to bring Vietnamese banking rules closer to international practice.
Most countries in the world today do not impose any limitation on the short term use ratio.
Trinh Cong Thang, deputy general director of the state-owned Industry and Commercial Bank (Incombank) said that he was not much interested in the new rule because his bank never used up the current allowed 30 per cent.
Head of Capital Sources Department of Vietcombank, Hoang Hong Hanh, meanwhile praised the news although her bank currently does not use up the cap, either. She said any move favourable for banks was welcomed.
“Enterprises will have more chance to access our long and medium term credit although we will probably have to follow more strictly the capital flow to avoid any liquidity risk.”