Unused State funds to be deposited at commercial banks, both State and private, from next year.
Commercial banks may gain access to temporarily unused State funds as a result of the recently-issued Decree No. 24/2016/ND-CP on the management of State funds.
The Decree stipulates that “temporarily unused State funds may be deposited at commercial banks ranked by the State Bank of Vietnam (SBV) as having a high level of safety, with priority given to commercial banks with a higher level of safety, better liquidity, and higher interest rates.”
While interest rates are a source of competition among joint stock banks, the higher level of safety and better liquidity are set by criterion under State regulations.
Circular No. 36 from the SBV stipulates that safety limits and ratios at credit institutions are the basis of determining whether the criteria are met, such as the bad debt ratio and the loan-to-deposit ratio (LDR).
Under this criteria some private commercial banks are in better shape than some State commercial banks in gaining access to State funds in terms of their bad debt ratio and LDR.
As soon as provisions on the management of State funds become effective, the rule that unused funds are automatically deposited in State commercial banks may be abolished. Such deposits have been in large amounts because only State commercial banks have had the “privilege” of access.
This “privilege” was described by experts at a seminar on banking sector as unfair for private commercial banks in approaching unused State funds, which amount to trillions of VND, according to the SBV’s financial reports.
Private commercial banks have time before the Decree becomes effective at the beginning of 2017 to improve their performance.