Be careful with liquidity when extending capital for medium and long-term loans

The State Bank has just issued Circular 36 on limits and safety ratios in the operations of credit institutions, which stipulates the maximum ratio of short-term capital for medium and long-term loans.

Experts warn banks to be cautious about using short-term capital for medium and long-term loans.

This is considered a positive move to create capital supply to the market and create conditions for reducing interest rates.

At DongA Bank, as of the end of September 2014, the proportion of medium and long-term loans accounted for 45% of total outstanding loans.

Most of these subjects borrow with a term of up to 15 – 20 years, but the capital mobilized by banks is mostly short-term (accounting for over 85%).

Dr. Tran Du Lich, member of the National Assembly’s Economic Committee, supports the policy of increasing the rate from 30% to 60% because he believes it will contribute to promoting credit growth and reducing central lending interest rates.

`This is necessary, helping good businesses have the opportunity to access capital to invest and restructure effectively,` he said.

Sharing the same opinion, Vice Chairman of the National Financial Supervisory Commission Truong Van Phuoc acknowledged that raising the ratio will create conditions for banks to have good liquidity in capital for medium and long-term lending, contributing to promoting

Mr. Phuoc further analyzed that short-term capital dominates, but this amount of capital continues to increase year by year, proving that this is a relatively stable capital flow.

According to the explanation of the State Bank, the ratio of 60% according to Circular 36 is not exactly doubled compared to the ratio of 30% prescribed in Circular 15 issued in 2009. The ratio of short-term capital sources used

Meanwhile, in Circular 36, the rate of 60% is calculated based on the formula B/C*100%.

According to Mr. Pham Huyen Anh – Director of the Department of Banking Operation Safety Policy (State Bank), Circular 36 defines medium and long-term loans as well as short-term mobilized capital in accordance with reality.

Also according to Mr. Anh, this new rate will contribute to supporting businesses to develop production and business.

`Increasing the ratio of short-term mobilized capital to medium and long-term loans aims to remove difficulties for business operations. However, the State Bank also calculated to not cause disturbances in operations, ensuring the ability

Dr. Nguyen Tri Hieu, Economic Expert, explained that in principle, if you mobilize for a term, you must lend for that term, but using short-term resources to invest in long-term assets is very dangerous.

Because according to Mr. Hieu, currently there is excess bank liquidity, so it is comfortable, but if the economy changes abnormally or suddenly people suddenly come to withdraw money, then banks will have to rush to the market.

This warning is worth heeding.

Faced with this trend, the State Bank decided to reduce the ratio of short-term mobilized capital for medium and long-term loans from 40% to 30% from January 2010 as a way to prevent liquidity risks of the bank.

Therefore, Mr. Hieu recommended that banks should not use this ratio to the maximum, but should have a pre-alarm limit of 60%.