The SBV has just issued Circular No. 22/2019 / TT-NHNN stipulating limits and prudential ratios in the operations of banks and foreign bank branches.
The remarkable point in this circular is the roadmap to gradually reduce the maximum rate of short-term capital sources used for medium and long-term loans: January 1, 2020 - September 30, 2020, is 40%; October 1, 2020 - September 30, 2021, is 37%; October 1, 2021 - September 30, 2022, is 34% and from October 1, 2022, will be only 30%.
The Banking Times reporter had a quick talk with TS. Bui Quang Tin - banking expert to better understand the impact of this regulation on the operation of banks.
How do you evaluate the process of reducing the rate of using short-term capital for medium and long-term loans of the State Bank?
Any decision of the SBV has an impact on the market, banks, and businesses. Regarding the regulations on the ratio of using short-term capital for medium, long-term loans in descending direction, it has been mentioned and analyzed a lot in recent years. Before making this decision, the State Bank issued a draft for consultation, thereby assessing the situation of how related entities are less adversely affected by the adjustment of policies of state management agencies.
When carefully analyzing the subjects involved in this policy, real estate enterprises may be most affected. Because this company still relies on capital flows of the banking system quite a lot, especially their capital needs are mostly medium and long-term capital. So, if the reduction is too fast, it affects the projects and real estate market. I think that is also one of the reasons, the State Bank has chosen to reduce the rate of using short-term capital for medium and long-term loans to 30% according to the 3-year roadmap and to adjust gradually to reduce by 3% from time to time.
In my opinion, this is a relatively gentle adjustment, appropriate. In fact, there are many banks in the banking system that bring this rate below 40% to only 30-35% but there are also banks that use the ratio of short-term capital for medium and long-term loans still more than 40%. If the SBV requires a rapid and sharp reduction, banks are entangled with many credit contracts signed with customers, which means they have used short-term capital for medium and long-term loans, making it difficult for them to manage.
At that time, to avoid not violating banking regulations, the only way is to reduce the output or increase the input. On the output side, banks must quickly reduce the ratio of short-term capital for medium and long-term loans to or reduce medium and long-term loans. This way is a bit difficult because the bank has signed contracts, committed to disburse with customers already. On the input side, banks must increase short-term capital mobilization or increase medium and long-term capital. In this situation, many banks will participate in the race to raise capital and push interest rates in the market, causing interest rate market movements to go bad.
In your opinion, will banks manage in time to bring the ratio of short-term capital used for medium and long-term loans to 30% within 3 years?
I think that banks have enough time to prepare and meet the regulations set by the State Bank. The most important thing to achieve when implementing this policy is to minimize risks to the banking system. The more responsible banks must consider and consider carefully when lending medium and long-term loans. According to this trend, banks are only short-term funding channels, and enterprises that want to borrow medium and long-term loans must go to the capital market.
Another noteworthy policy change this week was that the State Bank lowered the ceiling interest rate and short-term lending. Are you surprised by this decision?
It is true that compared to the rule of every year, the decision is somewhat unexpected. But judging from the current situation, I was not surprised and found that this was a perfect decision. There are 3 reasons for the State Bank to make a decision to lower interest rates.
Firstly, up to now, more than 30 central banks in the world have reduced interest rates. The second is the macroeconomic indicators namely well-controlled inflation. Thirdly, the liquidity of banks is quite abundant, clearly reflected by the interest rates on the interbank market that are trading at low levels ... accordingly, the bank still has room to lower interest rates. If the macro-economic situation, as well as banking activities, are as good as today, even, next year interest rates can still continue to decline.
How do you evaluate the SBV's interest rate adjustment decisions in 2019?
In my opinion, the interest rate adjustment decisions of the State Bank in 2019 are very reasonable and proactive in accordance with market trends. Unlike the central banks of the world, which lowered interest rates quite sharply, such as the Fed 3 times reducing interest rates, the European Central Bank still maintained negative interest rates ... In Vietnam, the State Bank also reduced interest rates but at a moderate level in accordance with the conditions of the market rather than a sharp decrease in the general trend.
I think that every decision to adjust the State Bank need to be evaluated carefully o that if the financial and monetary markets have negative changes, they can still actively control the situation and take timely solutions rather than suffering from strong impacts, which destabilize the financial and banking market in particular, and the economy in general.