A Growing Disparity Between Deposits and Loans
Recent data reveals mounting liquidity pressure in the banking sector. According to Rong Viet Securities Company (VDSC), the State Bank of Vietnam (SBV) injected a net of VND 110 trillion into the open market as of November 20, a figure close to the VND 124 trillion net withdrawal in the previous month. This heightened activity reflects a strained liquidity environment, with a high number of banks participating in the open market's mortgage channel.
In the interbank market, short-term lending rates have surged. The average overnight lending rate reached 5.17% in November, a 1.55% increase compared to October. Rates for terms under one month rose similarly, while the three-month term saw a smaller increase of 0.85%. This spike in rates indicates short-term liquidity challenges, driven by the peak credit growth season at year-end.
Although credit growth has accelerated, reaching 10.1% by the end of October—up from 9% in the first nine months of the year—deposit growth has not kept pace. Analysis of 29 banks’ third-quarter financial reports highlights this imbalance. Total customer deposits grew by 7.2%, reaching nearly VND 10.8 quadrillion. In contrast, outstanding loans expanded by 11.5% to over VND 11.3 quadrillion.
BIDV, one of Vietnam’s largest banks, exemplifies this trend. Its customer loans grew by 9.9% in the first nine months of 2024, reaching VND 1.95 quadrillion. Meanwhile, its total mobilized capital also increased by 9.9% but stood at a lower VND 1.85 quadrillion. This shortfall illustrates a systemic issue: banks are lending more than they mobilize, relying on charter capital to cover the gap.
Regulatory Constraints and Risks
Under current regulations, banks must maintain a maximum loan-to-deposit ratio (LDR) of 85%. This means a portion of mobilized capital must remain as a buffer to ensure operational safety. However, with deposits lagging behind loans, many banks are approaching or exceeding this threshold, exacerbating liquidity stress.
This imbalance is not new. It has persisted for years and intensifies during periods of robust credit growth, particularly at the end of the year. Despite upward adjustments in deposit interest rates, mobilization remains sluggish.
Experts attribute low deposit growth to shifts in investment behavior. With deposit interest rates relatively low, individuals increasingly opt for alternative investment channels such as gold, real estate, and other high-yield assets. The Big Four banks’ practice of offering lower interest rates significantly influences deposit demand across the market.
To address the shortfall, banks have resorted to raising deposit rates. Currently, some institutions offer rates as high as 7-9.5% per year, but these often come with stringent conditions, such as minimum deposit balances ranging from VND 500 billion to VND 2 trillion. For most customers, deposit rates hover between 6-6.4% annually. Additionally, banks are issuing deposit certificates with rates exceeding 7.1%, accompanied by favorable terms to attract capital.
Dr. Nguyễn Trí Hiếu, a banking and finance expert, cautions that lowering interest rates in the near future will be challenging. As year-end approaches, banks face mounting pressure to secure capital for lending. High deposit rates remain necessary to attract funds.
Furthermore, the practice of aggressively lending despite limited mobilized capital raises alarms. Banks are increasingly extending medium- and long-term loans using short-term deposits, which contradicts international best practices. This mismatch is driven by the higher profitability of longer-term loans.
By the third quarter of 2024, total medium- and long-term loans across 29 banks had increased by 10% compared to the end of 2023, amounting to over VND 4.9 quadrillion. While profitable in the short term, this approach heightens liquidity and maturity risks, as banks may struggle to meet withdrawal demands if deposits are not renewed.
To mitigate liquidity risks, banks have turned to the corporate bond market, using it as an alternative funding source. However, this reliance is only a temporary fix. The broader issue lies in the banking sector’s disproportionate role in supplying capital to the economy.
In developed financial systems, capital markets share the burden of financing businesses and infrastructure projects. In Vietnam, however, banks remain the primary source of capital. This concentration not only strains the banking system but also limits the development of a more diversified and resilient financial ecosystem.
The persistent gap between mobilization and lending highlights structural vulnerabilities in Vietnam’s banking sector. Addressing these issues requires a multifaceted approach:
1. Strengthening Mobilization Efforts: Banks must implement strategies to attract more deposits. Competitive interest rates, coupled with innovative savings products, can help retain existing customers and attract new ones.
2. Promoting Capital Market Development: Reducing the banking system’s dominant role in financing requires the development of robust capital markets. Encouraging corporate bond issuance and other non-bank funding channels can diversify capital sources.
3. Enhancing Risk Management: Banks need to align their lending practices with international norms, ensuring that medium- and long-term loans are adequately backed by corresponding liabilities. Improved liquidity management will mitigate risks associated with maturity mismatches.
4. Regulatory Reforms: The SBV should consider revising regulatory frameworks to better reflect the evolving financial landscape. Stricter enforcement of LDR limits and enhanced oversight of corporate bond activities will promote system stability.
Vietnam’s banking sector is at a crossroads. While credit growth signals economic vitality, the widening gap between mobilization and lending underscores systemic vulnerabilities. By adopting a balanced approach to capital management, banks can ensure sustainable growth while safeguarding financial stability.
