A frontal view of the State Bank of Vietnam headquarters. (Photo: Wikimedia.org)
The State Bank of Vietnam (SBV
), the country’s central bank, on February 2 issued a request for comment on its amendments to Circular 36, which would set stricter rules on asset-liability management and on providing credit to the real estate sector.
These proposals, if implemented in the coming months, would be credit positive for Vietnamese banks because they would improve their liquidity and limit credit growth in the relatively high-risk real estate sector, Moody’s Investors Service said in a released on Monday.
The SBV’s proposed asset-liability management rule reduces the share of short-term funding that banks can use for loans longer than 12 months to 40% from 60%.
As a result, “banks with sizable shares of longer-dated loans will have to slow their credit growth or shift their focus to shorter-term loans, which will benefit their liquidity,” said the rating agency.
Source: Moody's data compiled from banks.
Alternatively, the banks can attract longer-term funding to finance longer-term loans, but success in such an endeavor is unlikely because of higher funding costs and intense competition for deposits, Moody’s added.
Exhibit 2 shows the systemwide ratio of short-term funding for medium- and long-term loans increased to 29% in November 2015 from 18% in June 2014, leading to higher liquidity and refinancing risks for banks because of growing mismatches between the maturity of loans and deposits.
In addition, the SBV proposed an increased risk weighting of real estate loans to 250% from 150%, which limits the banks’ credit growth in this sector.
Vietnam’s real estate sector has historically posed significant risks to banks, with the 2008-2011 credit boom driven by rapid lending to this sector culminating in heavy losses for the banks, according to Moody's.
According to SBV data, total outstanding loans for the real estate sector, the local economy’s backbone, were 358.38 trillion dong (roughly $16 billion) at the end of September 2015, accounting for 8.05% of total credit.
Lending for this sector grew 14.59% in the nine months through September 2015, 2.5 percentage point higher than the systemwide credit growth.