How will the proposed liquidity tightening affect Vietnamese banks?

The share of short-term funding that banks can use for loans will be decreased.

On 3 February, the State Bank of Vietnam issued a request for comment on its proposed stricter rules on asset-liability management and on providing credit to the real estate sector. These proposals, which Moody's believe will be implemented in the coming months, would be credit positive for Vietnamese banks because they would improve their liquidity and limit credit growth in the relatively high-risk real estate sector.

Here's more from Moody's Investors Service:

The central bank’s proposed asset-liability management rule decreases the share of short-term funding that banks can use for loans longer than 12 months to 40% from 60%. As a result, banks with sizable shares of longer-dated loans will have to slow their credit growth or shift their focus to shorter-term loans, which will benefit their liquidity.

Alternatively, the banks can attract longer-term funding to finance longer-term loans, but success in such an endeavor is unlikely because of higher funding costs and intense competition for deposits.

The systemwide ratio of short-term funding for medium- and long-term loans increased to 29% in November 2015 from 18% in June 2014, leading to higher liquidity and refinancing risks for banks because of growing mismatches between the maturity of loans and deposits.

In addition, the State Bank of Vietnam proposed an increased risk weighting of real estate loans to 250% from 150%, which limits the banks’ credit growth in this sector. Vietnam’s real estate sector has historically posed significant risks to banks, with the 2008-11 credit boom driven by rapid lending to this sector culminating in heavy losses for the banks.

Although credit growth to the real estate sector of around 15% in 2015 was significantly lower than in 2008-11, the central bank is taking preemptive steps to limit the banks’ appetite for lending to this high-risk sector.