New liquidity rules set standards for banks

Nguyen Anh Quan, deputy director, Analytical & Research at FiinRatings

State Bank of Vietnam Circular No.50/2026/TT-NHNN marks a shift in the regulation of bank liquidity, bringing Basel III liquidity ratios into Vietnam’s prudential framework. The requirements come as credit continues to expand rapidly, deposit mobilisation becomes more costly, and banks face mounting pressure to build capital through retained earnings.

Effective from December 1, the circular introduces a phased roadmap for banks to comply with the liquidity coverage ratio (LCR) and net stable funding ratio (NSFR). The transition will begin in October 2028, giving lenders time to adjust their funding structures and liquidity management.

Under the roadmap, banks must initially maintain an LCR of 50 per cent, rising to 100 per cent by 2033. The minimum NSFR will start at 90 per cent before reaching 100 per cent by 2030. The circular also establishes a tiered approach to the loan-to-deposit ratio, linking the applicable ceiling to banks’ progress in meeting the new standards.

Banks that have yet to adopt the new ratios remain subject to the existing 85 per cent loan-to-deposit ceiling. Those in transition face a 95 per cent ceiling, while banks meeting both the LCR and NSFR requirements are exempt from the cap.

The changes are intended to encourage lenders to hold sufficient high-quality liquid assets and secure more stable funding, reducing their reliance on short-term sources to finance longer-term lending. Their impact, however, will depend on banks’ ability to meet the new requirements without unduly constraining credit supply or weakening profitability.

The timing is significant for Vietnam’s banking system, which continues to play a central role in financing economic expansion. Outstanding credit reached approximately $801.2 billion as of the end of June, up 7.7 per cent from the end of 2025. The private sector accounted for more than $728 billion, or 92.6 per cent of the total, while around 77 per cent of credit at the end of May was directed towards production and business activities.

The scale of financing required is set to remain substantial. Total social investment is projected at about $204 billion in 2026 and $1.54 trillion over the 2026-2030 period. Banks will therefore need to continue extending credit while maintaining sufficient liquidity and capital to absorb potential shocks.

Recent balance sheet trends point to a growing mismatch between lending and deposit mobilisation. Across 30 banks, customer loans increased by 7.41 per cent by the end of June, compared with 5.02 per cent growth in customer deposits. The resulting gap was approximately $66.9 billion.

The difference between loan and deposit growth does not, on its own, establish whether banks face a liquidity shortfall. Banks may use other funding sources to support lending, while the gap between the two growth rates provides a measure of how lending and deposit mobilisation have evolved over the period.

Deposit rates have already moved higher. Rates on longer-term deposits ranged from 5.9 to 7.8 per cent in June, compared with 4.8 to 7.1 per cent a year earlier. By the end of August, some deposit rates for certain tenors had exceeded 9 per cent.

Higher funding costs are putting pressure on net interest margins, which measure the difference between interest income earned on assets and interest paid on funding. Average margins declined from 3.5 per cent in 2024 to 2.9 per cent in 2025, before slipping further to 2.8 per cent in the first quarter of 2026.

The new liquidity rules could add to this pressure. Meeting the LCR will require banks to hold larger buffers of high-quality liquid assets, such as government bonds and deposits at the central bank. These assets can strengthen resilience during periods of stress, but may generate lower returns than customer loans.

Banks will need to balance the cost of holding liquidity against the need to sustain lending and profitability. Those with stronger deposit franchises, diversified funding sources and a greater capacity to attract stable deposits may be better placed to manage the transition.

Compliance is only part of the challenge. Banks must also generate enough earnings to support balance sheet growth and absorb credit losses. If credit expands faster than internally generated capital, lenders may have to moderate lending, raise additional capital or accept greater pressure on their capital ratios.

Banks’ ability to absorb losses will depend heavily on asset quality and provisioning. The non-performing loan coverage ratio stood at around 80 per cent in the first half of 2026, its lowest level in the five-year data series cited in the analysis. This leaves banks with a thinner reserve cushion against potential deterioration in loan quality.

Special mention loans, which can signal a heightened risk of borrowers falling into arrears, accounted for approximately 1.3 per cent. Although this category is not equivalent to non-performing loans, its development warrants attention alongside headline non-performing loan figures.

Collection trends for interest and fee receivables also point to persistent pressure. The average collection period rose from 43 days in 2023 to 49 days in 2025, before easing slightly to around 48 days in the first half of 2026. A longer collection period can tie up funds and may indicate that some borrowers are facing repayment difficulties, although the figure needs to be considered alongside the composition of receivables and banks’ accounting practices.

Leverage has declined over the longer term, from 15.8 times in 2019 to 12.4 times in the first half of 2026. Even so, off-balance-sheet exposures remain an important part of the risk picture. Credit-equivalent off-balance sheet exposures reached approximately $129.7 billion in the first half of 2026, up 24 per cent on-year and equivalent to 18 per cent of customer loans.

These exposures can include commitments and other contingent obligations that may require funding under certain conditions. Their scale means that liquidity assessment needs to consider more than the pace of deposit and loan growth on the balance sheet.

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