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Finance companies able to compensate for absence of banks?   2009-05-29 - DTCK

If banks are prohibited from loaning to fund securities investments, which many think is likely, will finance companies be able to pick up the slack and provide enough capital to support the development of the stock market?


The director of a securities company said that because his company provides many kinds of services on giving capital support to investors, he needs to cooperate with a finance company.


The director has another reason to shake hands with a finance company. The draft law on credit institutions says that commercial banks, foreign bank branches in Vietnam are not allowed to provide loans to fund securities investments. This means that if the draft law is ratified, as is expected, finance companies will be the only credit institution allowed to lend to securities investors.


Finance companies, which have the function of capital arrangement and have specific divisions for investment portfolio risk management, are believed to be the ideal source of capital for the stock market as the operations of finance companies do not have great impacts on the larger part of society.


Duong Thu Huong, Secretary General of the Vietnam Banking Association, said that the compilers of the draft law have every reason to allow finance companies to be the only entity to fund securities investments.


If finance companies go under, the consequences on society are small, unlike the case of banks, whose money mostly is mobilised from the public: A bank collapsing due to a failed investment deal has immeasurable consequences.


Tong Quoc Truong, General Director of PetroVietnam Finance Corporation (PVFC), which has been providing loans to fund securities investments, said that credit institutions which have strong corporate governance systems should be allowed to continue to loan to securities investors.


According to the State Bank of Vietnam, there are 17 operational finance companies which have the total chartered capital of over 15 trillion dong.

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