Banks benefit from stock market boom

Contrary to all predictions, the stock market is not the rival of banks in terms of attracting capital. In fact, banks have been benefiting from the rapid development of the stock market.

Joint stock banks once faced big difficulties in raising more funds to increase their chartered capital. Until the end of 2005. Since 2006, it has become not so difficult to raise funds if this work is carried out through the stock market.

A series of commercial banks have successfully increased their capital by issuing shares on the bourse. Considered ‘blue-chips’, bank shares have been selling very well on the market, priced at 5-15 times higher than face value.

Under the newly promulgated regulations, a joint stock bank must have the chartered capital of VND1tril ($62.5mil) by 2008 and VND3tril ($187.5mil) by 2010.

Previously, banks’ operations focused on credit activities which accounted for 90% of total income for banks. The rapid growth of the stock market has helped increase earnings from non-credit sectors. Repo, securities depository services, lending to securities companies and funding securities investment deals are new banking services appearing in recent days alongside the development of the stock market.

Many banks have joined forces with securities companies to offer convenient services to clients. Investors can both use the accounts they open at banks for securities transactions and use banking services as well.

Services related to the stock market have brought about huge profit for banks. The pre-tax profit of banks in 2006 was VND7,826bil, or $489mil.

Though a big sum of money has flown into the stock market instead of banks, the mobilised capital from the public continually increased in the first four months of the year, according to Nguyen Thi Huong from the Monetary Policy Department under the State Bank of Vietnam.

In Hanoi, the total capital raised from the public by the end of May 2007 is expected to be 17% more than the figure raised by the end of last year.

Opportunities for expanded investment and loans

Statistics show that by the end of April 2007, Hanoi-based credit institutions had spent nearly VND18tril on financial investment deals, mostly on securities trading, nine-fold higher than at the end of 2005.

Banks have been trying to expand their credit activities by offering more credit products, including loans to securities traders. According to SBV, 2.6% of total outstanding loans have been provided to fund securities investment deals.

Source: VNE