Vietnam central bank proposes easing limit on short-term funds for long-term lending

The State Bank of Vietnam has proposed raising the maximum ratio of short-term funding that commercial banks can use for medium- and long-term lending from 30% to 40%, marking a reversal of years of tightening aimed at reducing maturity mismatch risks.

The central bank (SBV) is seeking public comments on amendments to its Circular 22/2019, arguing that the change would provide banks with greater lending capacity as investment demand and economic growth accelerate.

If approved, the proposal would represent the first relaxation of the ratio in several years. Under the previous roadmap, the SBV gradually lowered the ceiling from 40% in 2020-2021 to 37% in October 2021, 34% in October 2022 and 30% from October 2023 onward.

The proposed amendment would effectively restore the limit to its 2020-2021 level.

According to the SBV, the revision is intended to support Vietnam's socio-economic development objectives and implement government policies aimed at accelerating public investment during the 2026-2030 period, particularly for large-scale infrastructure projects that require substantial medium- and long-term financing.

The ratio measures the extent to which banks use short-term deposits to fund longer-term loans.

Vietnam's banking sector remains the primary source of financing for the economy, while the corporate bond market and other long-term funding channels are still relatively underdeveloped. As a result, demand for medium- and long-term credit has remained persistently high.

Analysts say increasing the cap to 40% would give many banks greater room to expand lending, especially for infrastructure, industrial real estate, energy and business investment projects.

Research reports from several securities firms suggest the move could also reduce pressure on commercial banks to attract long-term deposits. Because longer-term deposits typically carry higher interest rates, allowing banks to rely more heavily on short-term funding could lower funding costs and support net interest margins (NIM).

Despite its potential benefits, the proposal has also raised concerns about liquidity risks.

Customer deposits in Vietnam are predominantly short-term, while loans for infrastructure, manufacturing facilities and real estate developments often have maturities ranging from five to 20 years. A heavier reliance on short-term funding for long-term lending could expose banks to refinancing risks if depositors withdraw funds before those loans are repaid.

Economist Nguyen Tri Hieu said relaxing technical limits may support credit growth in the near term but would require banks to maintain robust asset-liability management and liquidity risk controls.

"If medium- and long-term financing continues to rely too heavily on the banking system, maturity mismatch risks will remain," he said.

As Vietnam pursues higher economic growth targets, the central bank's proposal signals that policymakers are placing greater emphasis on ensuring sufficient credit flows to support the economy and large-scale investment programs, even as they seek to manage financial stability risks.