VietNamNet Bridge – The stock market has been stirred up with the news that credit institutions’ loans to investors to fund their stock investment must not be higher than 5 percent of the institutions’ chartered capital.

The State Bank of Vietnam (SBV) is about to issue a new circular, setting the limits and conditions for commercial banks in providing credit to fund stock investments.

Some analysts commented that the central bank will tighten lending to fund stock investments.

They cited the current regulation as saying that commercial banks can provide loans to securities investors if the loans are not higher than 20 percent of their chartered capital. Meanwhile, under the new legal document to be released in some days, the proportion is 5 percent only.

However, Pham Huyen Anh, a senior official at SBV, denied the fact that credit limits for securities investments will be cut.

“You should not confuse the current regulation quoted by analysts with the regulation to be issued in some days, because these are quite different concepts,” Anh said.

The current regulation says that banks can provide loans worth up to 20 percent of their chartered capital to fund securities trading deals.

“Securities” here include stocks, government bonds, corporate bonds, investment fund certificates … etc.  Meanwhile, the regulation to be set in some days will only cover investment in shares.

The total chartered capital of operating credit institutions in Vietnam, including foreign bank branches, is about VND435.5 trillion, which means that banks can provide loans worth up to VND20 trillion (5 percent) to fund stock investments.

The figure, according to Anh, is relatively high, so one cannot say the central bank has tried to tighten lending to fund stock investments.

Anh has also denied that the new regulation would affect stock market performance, saying that the daily trading volume in the stock market is just VND3 trillion.

Stock market reactions

The VN Index fell just two days after the news about the new regulation. On November 19, the VN Index of the HCM City bourse decreased by 1 percent, while the HNX Index of the Hanoi bourse dropped by 0.68 percent.

A report from BIDV Securities Company says that once the new regulation officially takes effect, banks will have to urge customers to pay debts in order to reduce the lending index to below 5 percent of chartered capital.

If so, customers will have to sell stocks to get money to pay debts to banks, which will affect the stock market in the short term.

Phuoc Ha