Vietnam limits bank loans for stock investments to curb speculation

Jun 29, 2007, 8:51 GMT

Hanoi - Vietnam's state banking regulator has ordered lending institutions to limit loans to stock-market investors, hoping to rein in speculation in the country's infant securities-trading system, state media reported Friday.

The State Bank of Vietnam ordered commercial banks that have stock-market loans surpassing 3 per cent of their total assets to stop lending to stock investors, according to Tuoi Tre newspaper.

Nguyen Danh Trong, deputy director of the SBV's Monetary Policy Department, told Tuoi Tre the new lending limits were necessary to avoid fueling rampant speculation in Vietnam's official and unofficial equity trading.

'No encouragement should be given to lending for stocks investment, even in cases where there is collateral,' Trong said.

Vietnam's official Ho Chi Minh City Securities Trading Centre has seen a wild ride in the past 18 months. The VNIndex measuring all stocks was up 144 per cent last year, and has fluctuated sharply during 2007.

The far larger - and unregulated - 'over-the-counter' market has reportedly seen even wilder gains, with some investors reporting doubling their money in just a few months.

Analysts have warned that Vietnam's newfound stocks craze - the stock market is only seven years old and until last year, most Vietnamese shunned the securities in favour of gold and real estate - may be irrational exuberance and making loans to buy more stocks only encourages it.

A recent survey by the SBV found that the level of loans to stock investors in all banks is now at 2.5 per cent of the total outstanding loans.

However, an official from SBV's monetary policy department revealed that small-scale banks have made up to 45 per cent of their total loans for stock investments, an unheard-of level.

At least 12 larger, private 'joint-stock' banks have lent an average over 7 per cent of loans to securities investors, the newspaper said. Total dollar figures of stock-investment loans were not available.

Some banks said they weren't worried about the risks of making loans to invest in the stock market. Several joint-venture banks have been rushing to cater the demand for this market because of high lending rate of returns.

'High profits always go along with high risks,' Tuoi Tre quoted. Nguyen Van Thanh, Incombank's deputy general director as saying.

Another bank representative told the paper that 'Banks are doing well and have no concern so far. They don't even worry even if the loan accounts for 10 or even 15 per cent of their outstanding loans.'