VietNamNet Bridge – The newly released Circular No 36, which limits commercial banks’ lending to fund securities investments, thereby blocking capital flow into the stock market, could lead to a collapse of the market, some believe.

Thoi Bao Kinh Te Vietnam quoted its sources as saying that policymakers have met again to reconsider Circular No 36 just released by the State Bank.

The State Bank has never before incurred such pressure after issuing new regulations.

The Vietnamese stock market unexpectedly saw sharp declines in the second half of December 2014, when foreign investors sold more than they bought, while securities companies were hesitant in their trading activities.

Some analysts blamed the sharp fall on Circular No 36, which they believe has blocked capital flow to the market.

An analyst commented that the stock market now does not have the “leverage” to grow, because banks have cut capital to securities investors who want to make investments.

He went on to say that stock investors, who were "shocked” to hear about the new regulation, have been hurrying to sell shares, and this could lead to immeasurable consequences.

One month after the new circular was released, the Securities Investors Association sent a dispatch to relevant agencies, proposing to delay the validity of the new regulation.

The association’s secretary general Nguyen Thanh Ky noted that foreign investors’ trading value has been decreasing and an excess of sales over purchases has occurred in many trading sessions.

“The director of a securities company called and told me that he has lost all the money he had earned this year,” Ky said.

Huyen Anh, a high-ranking official at the State Bank of Vietnam, denied that the capital flow to the stock market has become stuck because of the new circular.

With the new regulation, banks can provide up to VND21 trillion to fund securities investments at any time. Meanwhile, the market remains very small with a daily trading value of VND3-4 trillion only.

A financial expert expressed his strong support for the State Bank’s new regulation, saying that the strong capital flow from banks is “hot money” which should not be welcomed. Instead, the stock market needs capital from more sustainable capital sources.

Vo Tri Thanh, deputy head of the Central Institute for Economic Management (CIEM) agrees that Circular No 36 is necessary, because “banks should not provide money to people to play board games”.

Will the stock market collapse because of  Circular No 36? Thanh said this will not happen, because at this moment only several banks have made loans to securities investors higher than 3 percent of the banks' chartered capital.

Kim Chi