Under the draft, SBV's asset-liability management rule reduces the share of short-term funding that banks can use for loans longer than 12 months to 40 per cent from the current 60 per cent. — File Photo

HA NOI (Biz Hub) — Although amendments to Circular 36 are needed, they should be implemented gradually to avoid policy risks and difficulties to commercial banks, online news portal Bizlive quoted bank officials as saying.

The online news portal was quoting representatives from the State Bank of Viet Nam's (SBV) HCM City branch who said amendments should be implemented in the next 1-2 years.

The statement was in response to the HCM City Real Estate Association (HoREA), which proposed that SBV's HCM City branch not change the Circular 36 regulations on lending limits and capital adequacy ratio requirements for credit institutions, including branches of foreign banks, from January 1, 2017. In its response, SBV's HCM City branch said according to its opinion, the central bank should adjust the itinerary for the application of the regulations. However, since SBV had the authority to amend Circular 36, the branch would report the HoREA's proposals to the central bank.

According to SBV's HCM City branch, the draft amendments to Circular 36, which are in accordance with international rules, are aimed to ensure the safety of banking operations and to reduce liquidity risks in the wake of rapid credit growth to potentially risky industries such as real estate. The amendments are also expected to help the real estate industry maintain sustained growth.

In its proposals to SBV's HCM City branch last month, HoREA said it was worried the amendments might have a negative impact on the development of the real estate market, which has just started to bounce back from the crisis two years ago. The impact could affect property developers, traders and low income end-users.

The proposal was made after SBV in February issued a request for comments on its amendments to Circular 36, which will set stricter rules on asset-liability management and on providing credit to the real estate sector in an effort to restrain the liquidity risk and the amount of credit flow into the sector.

Under the draft, SBV's asset-liability management rule reduces the share of short-term funding that banks can use for loans longer than 12 months to 40 per cent from the current 60 per cent.

In addition, SBV also proposed an increased risk weightage of real estate loans to 250 per cent from the current 150 per cent, which limits the credit growth of banks in this sector.

Following the draft release, commercial banks also recommended to SBV to delay the implementation of the amendments, saying they would face numerous difficulties if the new regulation comes into effect as scheduled on January 1, 2017.

Phan Duc Tu, general director of the Bank for Investment and Development of Viet Nam, said it is currently difficult for banks to mobilise long-term capital in the domestic market as local depositors often choose short-term tenures. The reduction of short-term funds for medium-term and long-term loans will therefore be tough for banks, he said.

The banks have said that soon after the release of the draft circular, they adjusted the interest rates for long-term deposits on numerous occasions to woo depositors. However, the mobilisation is not as good as they expected.

They, therefore, suggested to the central bank that it adjust the itinerary for the application of the regulation in accordance with the capital mobilisation in the local market.

The National Financial Supervisory Committee also recently suggested that the itinerary for the application of the Circular 36 amendments needs to be scrutinised; and other suitable solutions should be taken for credit institutions those currently have short-term funds being used for medium-term and long-term loans higher than regulated. — VNS