Banks often use their charter capital to compensate for a capital shortage, as lending exceeds capital raising.
However, experts warned the gap between capital raising and lending is creating pressure on interest rates and even posing potential risks to the banking system.
According to Q3 2024 financial reports of 29 banks, the gap between capital raising and lending of the banks was significant. The banks’ total deposits in the first nine months of this year increased by 7.2%, against the same period last year to nearly 10.8 quadrillion VND (432 billion USD). Meanwhile, the banks’ total outstanding loans increased by up to 11.5% to more than 11.3 quadrillion VND.
In the period, BIDV led in lending with more than 1.95 quadrillion VND, an increase of 9.9% compared to the beginning of this year. Meanwhile, BIDV’s deposits was only 1.85 quadrillion VND, up 9.9%.
The same trend was seen at most other large-sized banks. VietinBank’s outstanding loans reached 1.61 quadrillion VND, while deposits were only 1.51 quadrillion VND. MB’s deposits increased by 10.6% to 627.57 trillion VND, while its outstanding loans increased by 14.9% to 702.02 trillion VND.
According to current regulations, banks must maintain the ratio of outstanding loans to total deposits at a maximum of 85%. It means that banks can not lend out all deposits, but must retain a portion to ensure safety in operations. Therefore, with the above deposit and lending figures, the banks will be in deficit of capital.
According to the State Bank of Vietnam (SBV), banks often use their charter capital to compensate for any capital shortfall.
According to experts, the gap between capital raising and credit within banks has appeared over many years and is showing signs of heating up. Capital raising has increased slowly this year because people have tended to withdraw bank savings to invest in gold, real estate or other investment channels with higher profitability, when deposit interest rates are low. In particular, the country’s four largest banks – Vietcombank, VietinBank, BIDV and Agribank (Big4 group) – have offered low interest rates and caused a huge adverse effect on deposits.
The consequence of the widening gap between capital mobilisation and credit is that banks must continue to increase deposit interest rates. Currently, thirteen banks are applying interest rates of 6-6.4% per year. In addition, some banks are issuing deposit certificates with interest rates above 7.1% per year, with many favourable conditions for buyers to attract capital.
According to experts, it is difficult for banks to maintain the current interest rate level.
Dr Nguyen Xuan Thanh, a lecturer at the Fulbright School of Public Policy and Management, said that the SBV is confident in its plan to increase credit by 15% this year. However, money supply currently increased by only 12% compared to the same period last year. If money supply is not increased, interest rates will tend to increase instead of decreasing.
Thanh also warned that the credit growth target may exceed the actual demand of the economy, which could pose risks in interest rates and bad debts.
Similarly, banking expert Dr Nguyen Tri Hieu also commented that an interest rate cut in the near future is unlikely because banks need capital to do business at the end of the year. Therefore, banks need to offer attractive interest rates to lure depositors to meet lending needs.
In addition, Hieu also warned about another potential consequence when banks are short of mobilised capital but still lending aggressively. According to international practice, banks must use medium and long-term raised capital for medium and long-term loans, but many banks mainly mobilise short-term capital, but prefer medium and long-term loans because of higher profits.
According to Q3 2024 financial reports of 29 banks, their total medium and long-term outstanding loans in the first nine months of 2024 increased by 10% compared to the end of 2023, to more than 4.9 quadrillion VND./.
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