Impacts On Business Of Commercial Banks Finance Essay

Bing one of the most of import industries of the economic system, banking industry ever pull the attending of direction bureaus and the populace. Associating Round 13, Bankss and banking industry are the first to be influenced at higher degree than any other countries. Impact of Round 13 on banking industry helps to do banking environment less jeopardy but Bankss face lower competitory motive.


Improve fiscal strength and stableness for commercial Bankss

Aiming stabilizing and developing banking system, Round 13 has referred to CAR ratio which creates a wall to protect bank stockholders from hazard assets. Harmonizing to Basel, Capital Adequacy Ratio by and large stays at 8 % . However, Round 13 ascent that ratio to 9 % . Under such an unstable fiscal environment as Vietnam, it seems to be a wise determination by State Bank of Vietnam ( SBV ) to better fiscal strength for Bankss. In the other side, to fit this demand, Bankss have to increase their capital. It is besides what SBV desires Bankss to make when it has merely increased the lower limit needed proprietor capital of commercial bank up to 3000 billion VND.

By and large in the universe, there is no minimal restriction for proprietor capital for a bank. In Vietnam market where commercial Bankss are excessively little compared with the range and graduated table of the economic system, it is nevertheless a important solution to avoid groups or individual who desire to rule or pull strings the fiscal market. Furthermore, high proprietor capital will extinguish moral jeopardy and inauspicious choice. The proprietors of Bankss will be more responsible to protect their capital via keep Bankss off from hazard.

Protect commercial Bankss from high hazard concern

Along with the fast growing of stock market and existent estate market, fiscal establishments including Bankss maintain traveling invest in those markets. This activity is really of import for the economic system in general and the stock market in short to develop and to spread out. However, there appeared several jobs when the Bankss involve in those market. First, capital market and money market is two important channels to mobilising capital for the economic system in which capital market provides medium and long term capital meanwhile money market via Bankss largely offer short term capital via sedimentation mobilisation from residential. The job occurs when Bankss use short term liabilities to put in long term assets straight via existent estate or securities investing or indirectly via loans for securities and existent estate investing intent. If the bubble of existent estate or securities broken, Bankss will lose liquidness and the economic system as a consequence will shortly fall in.

Understand this job every bit good as learn from the lessons of US and EU, SBV issue Circular 13 as a tool to protect Bankss from high hazard assets and concern such as existent estate or securities. It can easy be seen from content of Round 13 in which hazard weights for those two points are increased up to 250 % . Furthermore, Circular 13 helps to divide the map of commercial bank off from investing bank. Actually, commercial Bankss in the recent clip make what an investing bank does via securities loans due to miss of policies and regulations to command.

Improve liquidness direction of commercial Bankss

Liquid of commercial Bankss is besides one of the issues that Circular 13 refers to. Consequently, fiscal establishments are required to cipher and pull off payment ratio daily. Although it is a large challenge for many Bankss to make, it is extremely necessary to maintain liquidness of Bankss safe. Furthermore, to derive entree to the universe market and better competition ability against foreign Bankss, domestic commercial Bankss have to following international pattern and imposts.

Second, maximal mobilisation capital ratio referred by Round 13 that are disagreed by many Bankss really plays an of import portion in protect Bankss from loss of liquidness when Bankss fail in usage short clip liabilities such as inter-bank adoption to lessen long term assets.


Impact on the growing of bank ‘s competition

Capital Adequancy Ratio – Car which is caculated by per centum of capital to entire hazardous assets is considered as an of import ratio to reexamine the good health of a bank. It helps the spectator to see liquidness of a bank at due day of the month every bit good as recognition hazard and operational hazard that the bank may endure from. Sing the Round 13, CAR will be risen from 8 % to 9 % . In order to fit this rigorous demand, commercial bank neccessarily take one of the undermentioned proficient methods: Capital rise and cut down the growing of entire hazardous assets or reconstituting assets portfolio.

Under the circumstance that Vietnam ‘s every bit good as the universe ‘s economic system are sing depression, fiscal establishments get trouble in lifting capital due to the addition in involvement rate additions as a consequence of depression. In the other manus, cut downing the growing of entire hazardous plus is doing fiscal establishments confused by the struggle between the aim of capital adequancy and the net income taking mark. It means Bankss in one manus have to seek their best to vie in the ferocious market but in the other manus strengthen rating procedure to command quality of loans and cut down bad debt in their plus porfolio.

Impact on bank ‘s net income

Asset porfolio of a commercial bank include hard currency, sedimentations at other fiscal establishment, investings and loans. The visual aspect of Circular 13 has fundamentally changed the propotion among those types of assets. To guarantee liquidness ratio of a bank, long term sedimentation at other Bankss is encouraged to increase. To fit the ratios of Round 13, the per centum of valuable documents such as authorities bonds or notes should besides increase meanwhile, securities or investing in fiscal institions or existent esate is recommended to diminish. Lending and progresss concern has besides been limited due to rigorous rating. That alteration in plus porfolio construction has profoundly influence on net income of a bank when porfolio merely concentrate on low net income plus. Furthermore, to fit edequancy ratio, it wastes a certain sum of capital that might convey back immense net income for bank.

Impact on hazard direction scheme and recognition policy

Rigorous footings and demands from Round 13 alterations scheme and policy of recognition hazard direction at any bank. The process of aggregation information, rating, confirmation and expense bend to be more complicated that will thwart borrowers. On the other manus, cost of loan for client and cost of direction for the bank will be higher than earlier. This seem to conflict with the scheme of lower cost to vie. Furthermore, banking industry is a new comer to the universe. Technical substructure good as experience of commercial Bankss is non equal plenty to command hazard.


The Circular 13 has performed that SBV changes its direction scheme that turn to be more rigorous and standard. In the interim, Bankss have to see more trouble in concern and net income pickings. However, in long term, Round 13 generates a stable and healthy banking environment.


First, endeavor here must be understood as economic organisation which has its ain name, belongings, transaction-based stabilisation, the concern enrollment as prescribed by jurisprudence purposes to implement activitiesA concern to seek profit.A In the model of this article, the concern will include both domestic endeavors and foreign endeavors runing in all countries permitted by jurisprudence ( no exclusion of securities and existent estate field ) .


Better the direction of hazard

The addition of safety militias rate of the Bankss do non impact so much to the endeavors. Mr.Vu Cuong Quyet – The General Director of the Service and North Green Land Real Estate Corporation said that the impact here in footings ofA involvement rates every bit good as the psychological of fright is merely in the short term ( 3-6 months ) .A In the long term, the accommodation of capital adequateness ratio and avoiding recognition hazard of the banking system is really good.A It will do the existent estate market of sustainable development, professional and limit speculation.A Thus, the capital for loans from Bankss will concentrate on the channels which have lower hazard activities such as fabrication, concern in basic goods.A When the gross beginning for market go more stable and turn, the involvement rates will slowly lessening

A figure of companies runing in several sectors make benefit

The Circular 13 has been under the execution from the day of the month of 01.10.2010 can besides assist in footings of pecuniary policy in 2010 of State Bank.A This is consistent with recent indicants that the Government will direct the money flows to put into the production countries, particularly rural, agricultural and export production, forestalling the hazard of plus bubbles ( existent estate and finance ) destabilising macroeconomic.


The important reductionA in money beginning

Regulation which fixes the loan rates do non transcend 80 % of capital mobilisation is non prescribed patterns in the universe. ThisA may use merely in particular instances in assorted phases of insecurity.A This ordinance reduces the ability to make money and money multiplier of the banking system because a big sum of money raised that may lie dead in the Bankss alternatively of the fact that it will be granted to loaners.

At the same clip, in kernel, competition of additions savings involvement rates still dominate the way of cut downing the involvement rate on the inter-bank market and the OMO ( Open Market Operations ) should non reassign the heat to low involvement rate recognition for enterprise.A So in fact, the involvement rate may be non lower instantly and the ability to supply recognition of commercial Bankss for endeavors in the economic system has been limited.

To endeavors, over the past twelvemonth, it is non excessively easy to hold the bank loans for their undertakings, so the general tendency is about endeavors moved to raise capital or happen loans from other beginnings every bit good as other signifiers.

Troubles in raising of investing capital due to high involvement rates

Current high involvement rates have let many endeavors have troubles to entree the loans.A Low efficiency in production of the endeavors is besides lower.A Many endeavors, units have lost the chance and can non advance their possible strength, as a consequence, the fight of their goods have decreased really much. The high involvement rates at this clip are considered as the biggest difficultyA in spread outing the production and concern of about endeavors.

Besides, the Circular 13 has been enforced at the clip when the economic system and particularly commercial Bankss are confronting to the troubles in mobilizing and supply capital.A Many issues such as high rising prices, expectation-psychological besides make the ability in raising capital of commercial bank more difficult.A Some commissariats of Round 13 have caused the supply of bank capital trapped.

The banking sector – capable to direct influence from Circular 13, as a consequence, increasing the capital adequateness ratio of commercial Bankss will give them two options: either addition of equity capital or cut downing entire hazard assets.A In fact, the mobilisation of equity capital is unable to execute shortly, so the most possible manner now for commercial Bankss is cut downing the entire hazard assets.A With this execution, commercial Bankss have to cut off partially their loaning recognition for endeavors.

Additionally, ordinance for recognition rate compared with mobilized capital beginning limited at 80 % let the capital of loaning by Bankss be reduced about 34 % – compared with 100 % loans mobilized as earlier. So, with 100 dongs mobilized from other beginnings, commercial Bankss are allowed to contract loans at 66 dongs, and the job arises as to what measures Bankss will hold to still guarantee the concern when the cost of raisingA remain active, but gross fell significantly.A Whether a program to increase involvement rates is sensible or non when the policy of the State bank is to cut down involvement rates, while the loaning rate at 14 – 16 % is besides hard for endeavors.

To endeavors which have concern in existent estate investing and development, along with other securities, existent estate loans are required to raise the hazard factor of 250 % .A Thus, capital flows into existent estate endeavors will besides be reduced.A In add-on, the chief trouble for existent estate groups is the capableness of Vietnam. Real estate companies are rated as weak. Harmonizing to statistics, 60 % existent estate investing financess depends loans.A The mean debt ratio of listed existent estate companies besides above 21 % .A Obviously, it is excessively difficult to hold a loan, besides the cost of capital once more team up every bit required by commercial Bankss to raise involvement rates will do troubles for these endeavors.

For the other endeavors left, harmonizing to the mark and intent of the Circular 13 is the way of loans to fabrication or export and import companies.A But whether these companies have dared to borrow capital when involvement rates are presently at 14 – 16 % , are at hazard for more increasing by the concern consequences of the commercial banks.A Even with the rate of debt / entire assets as at nowadays ( Food – over 20 % , Agriculture and Fisheries – 36 % … ) , it is estimated that many companies will hold to reconsider programs to loan to balanceA between gross and capital costs.

The mean involvement rate of the loan for endeavors must be 18 % due to the fact that the bank loans were 14-15 % and so, plus other fees of approximately 3 % more.A If, as foreign endeavors they merely borrow a small money from Bankss if needed because of mainly equity capital, about Vietnam enterprises ‘ concern and production activities are based on loans.

It can be said that the current involvement rates are really high ; many concerns do non hold entree, particularly for little and average endeavors ( SME ) .A

The borrower and loaner must besides cipher, with high involvement rates that, if the adoption more or imparting more, either the concern will be lost and can non pay debts or commercial Bankss will confront to the capital sedimentations subject to high hazards.


Commercial Bankss have hard currency sedimentations of really big organisations, accounting for about 20 % of capital mobilisation, tantamount to several 10s of trillion.A So if merely 15 % of non-term salvaging money sedimentations was allowed to be used for the bank loan, it means the Bankss use merely a few thousand billion.A Thus, although this is the non-term capital beginning but in fact, it is comparatively stable, low involvement rates, therefore assisting Bankss cut down capital costs, thereby take downing the involvement rates.A State bank should increase the rate of usage of non-term capital loans up to 25-30 % , enabling the Bankss take downing involvement rates.

Many Bankss have prepared programs to cover: an understanding with concern of transportation from non-term into term of a twenty-four hours or a hebdomad, doing short-run capital into long-run through flexibleness sedimentation withdrawalA operation.A

Sing the hazard ratio specified upper limit of 250 % for concern loans of existent estate, securities, about commercial Bankss have merely limited the securities loaning, while existent estate loans are accountedA for consumer loans to lower hazard reserves.A Many Bankss besides find ways to cut down the hazard factor by 50 % alternatively of 100 % applies in instances the mortgage loan concern with assets of 3rd parties.A

On the other manus, about commercial Bankss which is still interested in puting in authorities bonds alternatively of giving loans to companies due to their fright of hazard, bad debt. To manage these jobs, foremost of all demand to happen ways to cut down public disbursement… Besides need to develop proficient barriers to high safety criterions to fasten banking activities, even little Bankss to be merged, in order to guarantee the safety of the system, avoiding the market becomesA distorted because of unjust competition, unequal.A

To cut down involvement rates, conveying recognition to the economic system, the authorities must drastically control inflation.A By this twelvemonth, if rising prices rate is around 8 % , involvement rates must be at around 9-10 % per twelvemonth to guarantee a existent involvement on nest eggs and bank loans have net incomes merely when the involvement rates more than A 10 per centum. Meanwhile, by addition of the budget shortage, the Government must increase the bond issue.A Meanwhile, private concerns, particularly little and medium-hard to “ vie ” with the authorities for entree to capital

IV. IMPACTS ON STOCK MARKET & amp ; Real Estate Market



Capital adequateness ratio – Car ( single and consolidate ) is raised from 8 % to 9 % .

Basically, there are merely two ways to increase the per centum of CAR, which is increasing “ equity capital ” and diminishing “ entire assets at hazard ” .


Raising CAR from 8 % to 9 % is higher than the Basel II demand of 8 % . However, the rate of 9 % is non excessively high for Bankss in the universe. In long term, the addition rate of CAR can do Vietnam ‘s banking system improve quality, entree to international criterions


Increasing “ equity capital ” : Nghe

A?a»?c nga»? am

As Bankss have to increase their ain capital, effects, the stock market will be under force per unit area from the supply of bank portions. Specifically, the end to finish at least 3,000 billion VND of capital at the terminal this twelvemonth, merely 21 Bankss which have non already standard in capital will necessitate to pull from the market 30,262 billion VND while the supplies of naming on the market besides increased strongly that attracted more capital from stock market. Although a roadmap to increase its hired capital to VND 3,000 billion by end-2010 was announced a few old ages ago, late the figure of Bankss said it was difficult to accomplish this end. This statement may be unreasonable and have negative impact on psychological science of investors in the stock market.

Decreasing “ entire assets at hazard ” : The ordinances on capital adequateness ratio for Bankss which have CAR ratio is less than 9 % have had to reconstitute their capital and sell their assets at hazard. For illustration, despite the portion monetary value decreased quickly Vietcombank still sold and registered to sell a sum of 10 million portions of EIB ( Vietnam Export Import Bank – Eximbank ) , 10 million portions of PVD ( PV Drilling ) . They besides will non pour more capital into the following issue of other Bankss. As a consequence, stock markets will non merely suffer from increased supply, but besides in danger of being capital decreasing, slack of trade goods and lower monetary values.

In the short term, the chief impact is that it is hard to take down involvement rates. The assurance and outlook of investors and about liquidness of the market will be diminution. Thereby impacting negatively on the stock market.


It is necessary to setup a roadmap to increase CAR to avoid the sudden alteration for Bankss and recognition organisations


Increasing of hazard factor for assets

For entire assets of hazard, there are merely two cardinal alterations in Round 13, compared with old ordinances. These are:

The loans to subordinates, joint ventures, associated companies will be adjusted the hazard factor increased from 100 % to 150 % .

Business loans for concern in existent estate and securities companies is raised the hazard factor from 100 % to 250 % . Risk factor of loan securities investing remains at 250 % , following the old ordinance of State Bank of Vietnam ( Decision No. 03/2008/QD-NHNN ) .


In the long term, the increasing of hazard factor for the existent estate, securities investing and loans for security companies could assist the banking system more stable against fluctuations of the economic system. This can be seen really clearly through the crisis on the U.S existent estate and fiscal market in 2008 – 2009.

The execution of Round 13 from October 1st 2010 can besides assist in footings of pecuniary policy in 2010 of Vietnam State Bank. This is consistent with recent indicants that the Government will direct the money into the production countries, particularly rural and export production, forestalling the hazard of plus bubbles ( existent estate and finance ) destabilising macroeconomic.


In peculiar, under Article 8 of Round 13, the Bankss will non allow recognition for the units are securities merchandising concern. With the above commissariats, the hard currency flow from Bankss into the securities will be tightened once more.



The rate of allowing recognition compared to the capital mobilisation is limited at 80 %

The notable point in Round 13 is mobilized points recalculated are non included: hard currency sedimentations of economic organisations, the province exchequer hard currency and loans of domestic recognition organisations.


At first glimpse, the rate of 80 % may look high but following this ordinance, the financess that commercial Bankss spend for the loan may be lower than 80 % of mobilized capital. Thus, recognition growing in the hereafter may be affected.

Cash sedimentations of economic organisations, province exchequer, societal insurance is rather stable capital, now it accounts for 15-20 % of the entire mobilized financess by the banking system. In add-on, the equity of many Bankss besides histories for a non little per centum, but it is non used for loaning.


The State Bank of Vietnam adjusted Round 13 to let commercial Bankss to utilize 25 % of sedimentations of economic organisations to impart.


The execution of Round 13


In the long term, the positive facet of the execution of Round 13 is banking operations will be improved, more sustainable and limited the hazard of plus bubbles.


Recognition growing in existent estate and securities could be deferred, if the footings related to entire hazard assets is done in earnest.

If the execution is non as expected, the banking system may non hold improved well, in peculiar for activities such as loans for investing in existent estate, security in the signifier of ‘loans for consume ‘ or loans for security companies through the mediators



The clip for execution Circular 13 is non sensible


Although the right policy, but in the context of macroeconomic conditions and banking system are good at: low rising prices, bank bad debt job is non so volatile, Bankss do non hold jobs with liquidness… the deficiency of financess, jobs tighten safety ordinances for the clip being to do unreasonable.

With effectual clip is 10/01/2010, get downing the last one-fourth of the twelvemonth, for safety grounds or a nice balance sheet, there will be a moving ridge of bank attempts to raise capital and sell securities ( down hazardous assets to raise hard currency ) . This ability to do negative impacts to the resiliency of the stock market at the current clip.


This Circular should be applied in following twelvemonth 2011 alternatively of at the terminal of this twelvemonth.



Short-run menaces


Real estate is an country that requires immense sums of capital and really long term. In extra, a feature of the existent estate concern in Vietnam is most of existent estate companies in Vietnam now, besides a portion of the equity capital, a portion of mobilized capital from clients, about the remainder depends to a great extent on loans from Bankss. Following Round 13, hazard factor of existent estate is raised to 250 % that caused capital flows into existent estate cut down. In add-on, troubles in relation to the belongings were capital resources of the Vietnam existent estate companies are rated as weak. Harmonizing to statistics, 60 % of existent estate investing depends on loans. The mean debt ratio of listed existent estate companies besides above 21 % . Obviously, troubles to borrow, plus the cost of capital once more team up as impact of lifting of bank involvement rate to will do many troubles for the existent estate sector.

As a regulation, recognition for existent estate is controlled at 10 % of entire outstanding loans of Bankss. The ability to raise capital is limited together with involvement rates for existent estate loans continued to increase after Round 13 causes the input cost addition. The general reaction of the concern organisations is profoundly concerned about the quiet end product of the market. A stop deading market can do companies to confront to a high hazard of bankruptcy.

In add-on to impacts on the field of civil, the tightening of recognition besides impacts on existent estate in industrial countries. Thereby impacting on many other Fieldss of industrial production.


Setup a roadmap to increase hazard factor of existent estate to make to 250 % as demand


Long-run chances


Bank recognition growing in existent estate investings have fewer mutants, so large existent estate companies frequently do non depend excessively much on this channel. Therefore it will efficaciously sublimate existent estate market.

In long term, the accommodation factor of safety of capital and prevent recognition hazards of the banking system will do the existent estate market of sustainable development, professional, cut down guess.

The loans from Bankss will concentrate on the channels that have lower hazard in activities such as fabrication. If gross beginning for market is stability and growing, the loaning rates will slowly lessening.


The impact of Round 13 and 19 to full economic system of Vietnam as a consequence of influence from commercial Bankss, stock market, existent estate and endeavors. It shows most clearly in two facets: Money supply of economic system and Interest rates.

The money supply

Vietnam is a underdeveloped state, so the demand of capital for investing in production is really high at present. In market economic system, the endeavor merely have little portion of equity capital, and staying largely comes from borrowed capital. Any production plan or a existent estate undertaking without the loan will fall into crisis.

However, the tightening of loaning policies will take to more hard for a endeavor who needs to mobilise capital to put in production.

Existing financess that commercial Bankss are chiefly based on the mobilisation of idle capital in the citizen, but in the last months, following General Department of Statistics announced consumer monetary value index CPI of November 2010 increases 8.96 % comparing with the same period in 2009, rising prices rate of November 2010 about 9:58 % compared to 2009. The rising prices rate along with higher gold monetary values and U.S. dollar make most citizens hesitate to set money in the bank. The mean Interest rates of Vietnamese commercial bank in November is about 12 % per twelvemonth ( BIDV Bank 12 % , Agribank 12 % and Techcombank 12, 45 % , ( delight refer to postpone below of involvement rate from Techcombank ) , while imparting rates is offering for a endeavor about 18 % per twelvemonth. This rate is a rather high. This makes little and medium endeavors get so much trouble to entree capital beginnings for investing in production and expand concern. Whereas little and average endeavors in Vietnam are taking 95 % of entire endeavors, they are lending immense productions and occupations of the economic system.

Therefore, the Central Bank has to take responsible to guarantee table recognition for as sustainable economic growing. That should be complete by maintain safety in banking system.

It will set more force per unit area on the pecuniary flow, particularly when the Government and the State Bank to put marks of recognition growing by 25 % in 2010 compared to last twelvemonth.

To work out this job, Mr.Bui Kien Thanh- the senior economic expert suggested that “ The State Bank of Vietnam should publish Bills and supply recognition to the commercial bank sensible rates to assist them pump more liquidness into the economic system ” .

Besides that, with the high current rising prices rate, people are wavering to set money in the bank and now they are salvaging gold and U.S. dollars. Therefore, to better this state of affairs, SBV should increase use more schemes to stabilise the economic system, cut down rising prices, draw up the citizens assurance and outlook, it help Bankss can mobilise this idle capital more efficiency

Interest rates

Harmonizing to the above impacts of 13 and 19 handbill ‘s impact to commercial Bankss, they create many challenges for the economic system. These round are released in the non so good state of affairs of Vietnamese economic should be see really carefully.

Expectation of cut down involvement rate may non come true after dated of Circular 13 comes to set up. As you may see all factors impact to Economic particularly in Money supply, the limited in money beginnings will set much force per unit area on involvement rate. Following Mr.Bui Kien Thanh suggestion, he said that “ If we expect to see sensible involvement rates in the market, SBV should shoot liquidness into the economic system through commercial Bankss to assist enterprises entree sensible involvement rate loans ” .

Because the State Bank of Vietnam does non necessitate mobilise capital from citizens, do non salvaging rate. State bank may publish recognition with no mobilisation involvement and most of import that they can publish money.

The job that does non in publishing money, State bank are allowed to publish money and recognition to guarantee of stable economic system development with adequate money flow.

However, if Central Bank supplies more capital into unfastened market, it can come to little Bankss through interbank market. Then the involvement rate can come down. Therefore, involvement rate decrease agenda depends really much on the money supply by runing the State Bank.


Mobilization Interest rate of Techcombank

From 09.00 am 01 Dec 2010

Normal involvement rate use for North and Midle of Vietnam

Beginnings from




/ twelvemonth



Time ( Month )































































Some chief index of November 2010 ( +/- ) comparing with same period of 2009 ( % )

Industrial production value


Entire retain goods and consumer services gross


Entire export


Entire import


Foreigner guest comes to Vietnam


Working Government Capital comparison with twelvemonth ‘s program


November 2010 CPI comparison with 2009 ‘s same period


Beginnings from General Statitics Office ( )

Stock market of Vietnam – VN Index

Beginning from hypertext transfer protocol: //

*VN Index began to fall down since October 15th when Round 13 had announced and recovered from October 22th when had information from the Government about accommodation of Round 13.