Stock lending capped at 5 percent of banks' charter capital

Starting next February, total outstanding loans that commercial banks and branches of foreign banks may offer for stock investment cannot exceed 5 percent of their charter capital, according to a circular issued on November 21 by the State Bank of Vietnam (SBV).
Starting next February, total outstanding loans that commercial banksand branches of foreign banks may offer for stock investment cannotexceed 5 percent of their charter capital, according to a circularissued on November 21 by the State Bank of Vietnam (SBV).

Credit institutions are qualified to lend for stock investment iftheir bad debt ratios are below 3 percent. Loans offered for stockinvestment cannot be guaranteed by the stocks themselves. Banks alsocannot lend based on any forms of guarantee by other creditinstitutions.

Experts did not expect the new regulations to hurt capital inflow in the stock market.

A leader of the SBV's banking inspection and supervision agency toldthe website VnEconomy that the limit actually gave more room for lendingthan the old rule.

Circular 13, issued in 2010,stipulated that total outstanding loans for securities investment (whichincludes stocks, bonds and other securities) could not exceed 20percent of banks' charter capital. Of that 20 percent, the majority oflending went to bonds and just a small proportion to stock investment.

Now banks will have more money to lend to stocks, he said.

In a November 18 report, HCM Securities Co estimated the total chartercapital of all credit institutions in the banking system at 435trillion VND (20.4 billion USD), meaning banks could lend around 21.75trillion USD (over 1 billion USD) to stock investment. This number isstill higher than total margin lending of around 17 trillion VND (798million USD) on the stock market as of October.

Thecurrent size of transactions on both stock exchanges is modest, withjust 3-4 trillion VND (141-188 million USD) worth of shares traded eachsession.

Senior analyst at MB Securities Co Do BaoNgoc said the new regulations could have a short-term psychologicalimpact on investors but would not significantly affect investment in themarket.

In the medium and long term, the regulationaims to ensure basic conditions for stable market development,encouraging sustainable investment rather than depending on banklending, Ngoc said.

The circular also slashes therisk ratio of lending to securities and real estate investments from 250percent to 150 percent, a move that SBV hopes will promote developmentof real estate and stock markets.-VNA

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