Officially raising the ceiling on short-term capital for medium and long-term loans with banks

Circular 25 amending and supplementing Circular 22 on limits and safety ratios in banking operations has just been issued by the State Bank, effective from July 1.

Accordingly, banks will be allowed to apply the maximum ratio of short-term capital to medium and long-term loans of 40%. According to current regulations, this rate was previously adjusted to gradually decrease from 40% in 2020 to 30% from October 2023.

Loosening this ratio helps banks have more room for medium and long-term loans, especially for projects requiring large capital. However, this move also means that it may increase liquidity risks.

The State Bank said this change is aimed at implementing the Party and Government’s policies and directions on promoting socio-economic growth and medium-term public investment in the 5-year period 2026 – 2030, with the goal of achieving double-digit growth rates associated with macroeconomic stability.

Along with that, the operator continues to allow 80% of the State Treasury’s term deposit balance to be included in the mobilized capital used to calculate the outstanding loan to total deposit ratio (LDR).

In just the last two months, the State Bank has made two amendments to the ratio of short-term capital for medium and long-term loans as well as the way to calculate the LDR ratio, both with the goal of supporting liquidity for the system.

Previously, at the regular Government meeting in April, the Government assigned the State Bank to review and amend regulations and take appropriate measures to ensure liquidity for the banking system.