New lending rules to help banks: Moody's

The SBV early this month issued a request for comment on its amendments to Circular 36, which would set stricter rules on asset-liability management and on providing credit to the real estate sector.

According to Moody's, these proposals, if implemented in the coming months, would be credit positive for Vietnamese banks because they would improve their liquidity and limit credit growth in the relatively high-risk real estate sector.

The SBV's proposed asset-liability management rule reduces the share of short-term funding that banks can use for loans longer than 12 months to 40% from 60%.

As a result, the rating agency said, banks with sizable shares of longer-dated loans would have to slow their credit growth or shift their focus to shorter-term loans, which would benefit their liquidity.

Alternatively, the banks can attract longer-term funding to finance longer-term loans, but success in such an endeavour is unlikely because of higher funding costs and intense competition for deposits, according to Moody's.

 The system-wide ratio of short-term funding for medium- and long-term loans increased to 29% in November 2015 from 18% in June 2014, leading to higher liquidity and refinancing risks for banks because of growing mismatches between the maturity of loans and deposits.

In addition, the SBV proposed an increased risk weighting of real estate loans to 250% from 150%, which limits the credit growth of banks in this sector.

According to Moody's, Vietnam's real estate sector has historically posed significant risks to banks, with the credit boom between 2008 and 2011 driven by rapid lending to this sector culminating in heavy losses for the banks.