Loaning for securities investment: 2.5%, 7% or 40%?

The leader of the State Bank of Vietnam’s Monetary Policy Department this morning revealed figures on loans for securities investments of a few banks, which may startle everyone, because they amount to 40-50% of the bank’s total outstanding loans.

Experts and investors sighed relief when the State Bank of Vietnam announced a low percentage of loans for securities investments, at 2.5% of total outstanding loans on average, or 0.1% lower than earlier this year.

In fact, only state owned banks and foreign bank branches have low ratios of loans funding securities investments. The ratio is much higher, at 7%, for many joint stock banks.

Twelve joint stock banks have been found as having a percentage of loans funding securities investments higher than the allowed level at 3% of total outstanding loans.

The figures have been made public by the State Bank of Vietnam. However, it did not release other figures, which may surprise everyone. A leader from the Monetary Policy Department this morning revealed that the ratios in a few banks were 40-50% of total outstanding loans.

The source said that such a high percentage can be seen in very few small banks only, but it was enough to ring the alarm bell over the operation of banks. He said that such a high ratio had never been seen in any kind of loaning so far.

The official has declined to reveal the names of the banks, saying that this was a very ‘sensitive’ problem.

He stressed that it was necessary for the central bank to intervene in this case in order to avoid risks for the banking system as a whole.

Prior to that, investors and bankers voiced protest against the central bank’s decision to limit loaning for securities investments, saying that the central bank was too cautious in this issue, and thus was interfering with banks’ operations.

However, Governor of the State Bank Le Duc Thuy insisted on tightening the loaning for securities investments.

According to Mr Thuy, a world-famous economist, Vietnam is the only country in the world that allows banks to provide loans to fund securities investment. Other countries never allow their banks to get involved in funding securities investment deals.

“I know some banks have percentages of loans for securities investments far exceeding the allowed 3% level. They think risks will not come, but I have the responsibility to stop them, because if risks occur, the whole banking system will shake violently,” Mr Thuy said.

Source: VNE