This feeds into the narrative that policymakers are trading off higher growth today in exchange for more financial risk tomorrow.
Vietnam’s central bank is seeking feedback on a proposal to raise the maximum proportion of short-term funds that banks can use for medium and long-term lending to 40 percent from the current 30 percent, Dau Tu Kien Thuc has reported.
The State Bank of Vietnam said the change would give lenders more flexibility to finance sectors with long investment cycles, including housing, real estate, construction, infrastructure and energy.
This would reverse a years-long tightening process that reduced the ratio from 40 percent in 2020 to 30 percent by October 2023, a measure aimed at limiting maturity mismatches between deposits and loans.
This adds to a string of moves to expand lending capacity that may come with increased banking sector risk.
For example, last month, Vietnam’s State Bank announced that several state-owned banks would be allowed to include 20 percent of State Treasury term deposits in loan-to-deposit ratio calculations.
This was in response to Vietnam’s big four banks, as of March 31, reporting loan-to-deposit ratios from 82.9 percent to 84.5 percent, edging closer to the regulatory ceiling of 85 percent.
Vietnam’s Finance Ministry has also proposed delaying VND 125 trillion (US$4.74 billion) in tax and land rent payments in 2026, effectively leaving more cash in the hands of businesses.
Under the proposal, payment deadlines for value-added tax, corporate income tax, personal income tax and land rent would be extended from two to five months, depending on when payment is currently due.
These moves are risky.
What happens if depositors decide to draw down their deposits? This is all the more pertinent amid a recent push to lower deposit interest rates, which could encourage savers to seek higher returns elsewhere.
What happens when the Treasury needs to draw down its funds to pay for essential services or infrastructure projects?
What happens if those deferred taxes are not well spent and firms are unable to make payment when they come due on their extended deadline?
That is to say, allowing more short-term deposits to be used for long-term loans feeds into the narrative that policymakers are trading off higher growth today in exchange for more financial risk tomorrow.