Banks tighten securities investment funding

Banks have begun taking action to tighten the funding of securities investment deals in order to bring their outstanding loans to stock investors to below 3% of total outstanding loans as the central bank has required.

The Director of the Saigon Housing Development Bank at the end of June 2007 released a decision to stop funding securities investments immediately. The bank has also stopped the disbursement of the loans which had been approved by bank leaders. The director asked his staffs to re-assess the securities market value, and asked borrowers to reduce the outstanding loans or provide more mortgaged assets.

The Military Bank still opens its doors to securities investors, but the bank now only provides loans to clients who have accounts at securities companies with whom the bank has cooperation agreements.

Meanwhile, state-owned banks, which have outstanding loans for securities investments at low levels so far, below 2%, seem to not intend to expand credit to securities investors, though they still could do that.

Le Dao Nguyen, Deputy Director General of the Bank for Investment and Development of Vietnam (BIDV), said that BIDV did not intend to provide loans to fund securities trading deals.

According to AC Nielsen, a market research company, only 0.26% of Vietnam’s population participates in the stock market. By June 29, the number of accounts opened at securities companies had reached 200,000, including 5,000 ones owned by foreign institutions and investors. The figure proves to be very ‘modest’ if compared to the high population. It is estimated that 55 investment funds are present in Vietnam, which have brought a huge sum of money worth $6bil.

The State Bank of Vietnam on August 9 released a document urging banks to collect debts to lower the outstanding loans given for securities investments. Commercial banks have six months more to do that. This showed the central bank’s determination to put a cap on loaning for securities investments, despite protests from commercial banks.

Le Xuan Nghia, Director of the Banking Development Strategy Department under the State Bank of Vietnam, said that in the world only India limited its banks’ outstanding loans for securities investments at below 5%, while other countries allowed commercial banks to decide themselves how much to loan.

However, the central banks in these countries have good information systems, which allow them to initiate decisions in every bank quickly.

“The principle we follow is trying to limit loans for securities investments, but not cause big difficulties for banks and avoid sudden changes to the market,” Mr Nghia said.

Le Dac Son, Director General of VP Bank, said that in Vietnam, a fledgling market, it was necessary to control the loaning for securities investments. However, he said that it would be more appropriate to raise the cap from 3% of total outstanding loans to 5%-6%.

Source: VNS