Which banks benefit from lifting the short-term capital ceiling for medium and long-term loans?

Circular 25 of the State Bank takes effect from July 1, increasing the maximum ratio of using short-term capital for medium and long-term loans (SMLR) from 30% to 40% for banks.

Previously, this ratio was adjusted down from 40% to 30% and applied from the beginning of 2023 to limit the risk of term difference between mobilized capital and loans.

Vietcombank Securities Company (VCBS) assesses that raising the ceiling to 40% is not a “step back” in risk management. The company believes this is a calculated easing measure to support the economy, creating time and space for banks to accumulate resources before entering the more stringent Basel III standardization period from 2028.

Accordingly, in the next two years, banks will be required to apply the net stable capital resources ratio (NSFR) according to Basel III standards – a target that reflects the ability to meet long-term funding needs with stable capital sources – instead of regulations on the ratio of using short-term capital for medium and long-term loans. According to the roadmap, NSFR must reach a minimum of 90% from 2028 and 100% from 2030.

As for the new regulation raising the short-term capital ceiling for medium and long-term loans from 30% to 40%, Vietcombank Securities estimates that it can expand the banking system’s medium and long-term lending space by about VND 1 million billion.

This additional debt balance will mainly support industries with long capital return cycles such as real estate, renewable energy, public investment and industrial infrastructure. Accordingly, the credit growth rate of the entire industry is expected to reach 17% each year, VCBS said.

According to this securities company, the proportion of medium and long-term outstanding debt of the entire system may increase again to about 48-49%, equivalent to the period 2020-2021, from about 46% at the end of 2025.

In a context where long-term mobilization interest rates are often significantly higher than short-term deposits, being allowed to use more short-term capital also reduces the pressure to issue bonds to increase long-term tier 2 capital with high interest rates. Thereby, capital costs and profit margin support (NIM) of banks will improve in the second half of this year.

VCBS estimates that the level of benefits will be different between banking groups before the new regulations.

State-owned banking group including BIDV, Vietcombank, Vietinbank always maintain the SMLR ratio at a very safe level of 20% to 25%. This group possesses great advantages in terms of stable long-term deposit structure and large amount of charter capital.

Along with amending the formula for calculating the outstanding loan to total deposit ratio (LDR) to allow 20% of the State Treasury’s term deposit balance to be added back into mobilization, this group will receive liquidity support to promote credit in the fields of public investment construction, financing transport infrastructure projects, energy…

With a large private banking group like Techcombank, MB, Sacombank, ACB and VPBank, the SMLR ratio is also stable around 24-27%. This group makes good use of the abundant demand deposit flow to optimize capital costs without violating term risk regulations.

The new regulations will create more room to promote lending to high-yield segments such as home loans, infrastructure and real estate projects, while reducing the need to mobilize long-term capital at high costs, thereby supporting NIM improvement.

At the group of small and medium sized banks, Some units have a very high proportion of construction – real estate loans (such as NCB, OCB, SHB, MSB…). Some banks also have a ratio of short-term capital for medium and long-term loans that is close to the prescribed ceiling of 29-30%.

The State Bank’s raising the ceiling to 40% has removed direct pressure from this banking group, reducing the race for long-term deposit interest rates.

In addition, the pioneering group that early implemented Basel III such as VIB, Techcombank, ACB, VPBank, HDBank, TPBank, OCB will have great advantages thanks to being exempted from applying short-term capital ceilings for medium and long-term loans and loosening credit growth room. Thanks to that, these banks can optimize capital use and protect NIM, while proactively balancing risk and long-term growth.

However, the loosening of the ceiling on the ratio of short-term capital for medium and long-term loans according to VCBS also poses challenges for the banking system.

Analysis teams of securities companies and experts believe that using a lot of short-term capital to finance long-term assets increases the risk of term mismatch. This is also the reason why the State Bank tightened this rate in the previous period.

VCBS analyzed that the loosening of this limit increases the requirements for banks’ liquidity risk management in the context that the capital structure of the banking system is still mainly based on short-term deposits of less than 12 months (accounting for 80-90% of total deposits). Meanwhile, the economy’s credit demand focuses heavily on medium and long-term loans.

This is assessed by VCBS as likely to increase the maturity gap between assets and capital, as well as requiring banks to have appropriate portfolio optimization and liquidity risk management strategies for each period.