With the issuance of Circular 30 by the Vietnamese central bank, stipulating the reserve requirements for credit institutions and foreign bank branches, about VND40 trillion (US$1.73 billion) in required reserves may be converted into loans, according to Bao Viet Securities Company (BVSC).

Illustrative photo.

The circular lists cases that credit institutions are granted a reserve requirement waiver or a lower reserve requirement ratio. In fact, the State Bank of Vietnam (SBV), the country's central bank, had planned this amendment last February and now released the official document.

Article 3 of Circular No. 30 grants a reserve requirement waiver to three groups of credit institutions, including credit institutions under special control (DongA Bank and three other commercial banks that SBV purchased at zero cost), credit institutions that have yet to start operations, and credit institutions that are approved to dissolve or to open bankruptcy proceedings or to see their licenses revoked by the competent authority.

Additionally, under Circular 30, credit institutions that support the system restructuring (as stipulated in Clause 40, Article 4 of the 2017 amended and supplemented Law on Credit Institutions) are granted a 50% reduction in reserve requirement rate. According to this regulation, over the past years, major state-run banks such as Vietcombank, VietinBank, and BIDV have participated in the restructure of DongA Bank, CB Bank, Ocean Bank, and GP Bank, through liquidity support, management of executive personnel, business cooperation, among others, as soon as these organizations implement mandatory restructuring.

BVSC estimated that based on the report of the third quarter of 2019, the required reserves of Vietcombank, BIDV, and Vietinbank at the SBV are VND83 trillion (US$3.59 billion). Assuming that these three banks are granted a 50% reduction of the required reserve ratio under Circular 30, more than VND40 trillion (US$1.73 billion) in required reserves will be "released", meaning that their capital cost will also decrease, allowing these banks to lower lending rates.

However, by the end of the third quarter of 2019, both Vietcombank and BIDV were having excessive deposits at the SBV (15% and 26% respectively), therefore, the release of additional required reserves may not considerably benefit these two banks at the moment.

Besides, it remains to be seen whether the SBV would allow these banks to receive a 50% reduction in reserve requirement ratio.