Hanoi (VNS/VNA) – The State Bankof Vietnam (SBV) is planning to change its policy on reserve requirement ratiosfor credit institutions and foreign banks’ branches for the first time since2011. The plan has put forward for comment.

The SBV will reduce the reserve requirement ratio by half for creditinstitutions that take part in the central bank’s plans to support therestructuring of ailing credit institutions.

The reserve ratio is the portion of reservable liabilities that depositoryinstitutions must hold onto, rather than lend out or invest. Currently, theSBV’s reserve requirement ratio applicable to demand and below 12-month termdeposits is 3 percent of the total deposits, while the rate for 12-month-plusterm deposits is 1 percent. The ratios for foreign currency deposits are 8 percentand 6 percent, respectively.

The above rates have remained unchanged since 2011.

According to the central bank, the draft policy was aimed to implement therevised Law on Credit Institutions. 

Experts said the move was aimed at encouraging banks to take part in therestructuring of ailing credit institutions as the reduction of the reserverequirement ratio would help them have more cheap capital sources for businessactivities.

Banking expert Nguyen Tri Hieu said if the reserve requirement ratio wasreduced, costs would decrease, thereby increasing the lending capacity anddeposit expansion coefficient of credit institutions.

However, the new policy would contribute to increasing finances, causing thecentral bank difficulties in controlling the liquidity of the banking systemand inflation.

To minimise the adverse impacts, banking expert Phan Minh Ngoc suggested thecentral bank should limit the simultaneous use of other preferentialinstruments, such as refinancing loans with zero percent interest rates, forcredit institutions that supported the restructuring of ailing creditinstitutions.

Some banks, including Vietcombank, VietinBank and BIDV, have participated inthe restructuring of DongA Bank, CB Bank, Ocean Bank and GP Bank.

According to the central bank, after years of major restructuring in thebanking system, eight credit institutions have disappeared from the market:MDBank, MHB, DaiABank, Ficombank, TinNghiaBank, SouthernBank, WesternBank andHabubank.

In the past year, with improvement in legal frameworks for restructuring creditinstitutions and dealing with bad debts, such as the issue of Resolution No42/2017/QH14 by the National Assembly and the amended Law on CreditInstitutions, the banking industry has ramped up the restructuring of ailingcredit institutions and dealt with non-performing loans (NPLs).

Credit institutions settled 149.22 trillion VND (6.37 billion USD) of NPLs lastyear, helping reduce the NPL ratio of the entire banking system to 1.89 percentby the end of 2018 against 1.99 percent by the end of 2017.

By the end of 2018, total assets of credit institutions reached 10.91quadrillion VND, up 9.17 percent against the previous year. Their capitaladequacy ratio also improved at 12.08 percent on average.-VNS/VNA