Vietnamese banks are holding abundant short-term liquidity, but they still need medium- and long-term capital sources to boost credit growth.
The wave of banking interest rate cuts continued in January. The Big 4 banks, namely Vietcombank, Agribank, VietinBank, and BIDV, all brought deposit interest rates for 1-3 month terms down to below 2%. Joint stock commercial banks such as Techcombank, TPBank, VIB, and SHB have also lowered interest rates.
This would indicate that the banking system's liquidity is still abundant and banks can afford to reduce interest rates.
However, banks have mobilized large amounts of capital through the bond channel. According to the Vietnam Bond Market Association (VBMA), banks issued their largest ever volume of bonds in 2023 with a total value of VND176 trillion ($7.23 billion), or 56.5% of the total issuance value in the market.
At the start of 2024, a series of banks including SHB, LPBank, VietinBank and BIDV announced that they had raised more than VND17 trillion ($698.15 million) in bonds by the end of 2023.
LPBank grasped public attention when it successfully issued four batches of bonds with a total value of VND9.75 trillion ($400.4 million), terms of 2 to 3 years, and interest rates from 5.1% to 6% per year. SHB announced that it had successfully issued VND2.45 trillion ($100.62 million) of 7-year bonds, with an interest rate of 7.95% per year.
Assoc. Prof. Dr. Nguyen Huu Huan from the Ho Chi Minh City University of Economics told The Investor that banks boast abundant liquidity in short terms of less than 1 year, while their need for long-term loans remains large.
Banks mobilize capital from people and businesses mainly for short terms of less than 1 year, while loans needed for long-term investment goals such as buying houses and cars can be over 10 years.
According to the State Bank of Vietnam, about 88% of deposits in the banking system are for terms of 12 months or less, while over 52% of the system's VND loans are for medium- and long-term contracts.
This shows that the banks’ medium- and long-term capital sources are not enough to meet the needs of medium- and long-term loans, especially for real estate projects with loan terms lasting from 10-25 years, he said.
On the other hand, since October 1, 2023, the ratio of short-term capital to medium and long-term loans has been capped at a maximum of 30%, down from 34% in 2021.
In 2023, credit grew quite slowly and only made a breakthrough in the last months of the year. Broker Saigon Securities (SSI) expects credit growth to reach 14% this year, partly supported by falling lending rates. The growth potential comes from the infrastructure construction industry, manufacturing and FDI enterprises, and priority sectors such as agriculture, export, high technology, small-sized enterprise (SME) development, and supporting industries.
In addition, SSI said that real estate developers need VND200 trillion ($8.21 billion) to pay bonds due in 2024. This could also be an important driver of credit growth this year, unless regulators continue to strictly inspect and control credit grants to related parties and satellite companies.
The broker analyzed that banks will compete with each other to gain market shares in the home loan segment for projects with full legal status and prime locations. Only banks with good medium- and long-term capital will be able to offer loan programs with competitive interest rates, attracting customers from other peers.
“Therefore, banks must issue bonds with longer terms to meet medium- and long-term lending needs in the future,” it noted.