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SSC says “no” to repo   2009-06-25 - VietNamNet/DTCK

The State Securities Commission (SSC) has instructed securities companies to stop signing new repo contracts and threatened to impose heavy penalties on violators. The decision has, immediately, sparked worries that cash will stop flowing into the stock market.

 

 
With the move by SSC, investors cannot mortgage securities to borrow money, which is believed will lead to slower capital turnover in the market.

 

Analysts say that in the last several months, the continued cash flow to the stock helped keep the market bustling. If the cash flow is blocked, demand will decrease and the market will slow.

 

In general, repo contracts that securities companies sign with clients are for three months. In a few months, investors will have to sell stocks to terminate existing contracts. With no new repo contracts having been signed, a significant sum of money will not be put back into the market.

 

Securities companies have also been reducing measures to support investors, especially with the stock market having recovered impressively. Moreover, lending interest rates are now considered relatively high.

 

Currently, lending interest rates under repo contracts for less than 15 days are between 1.2-1.3 percent per month, while the rates are 1.2-1.3 percent per month for contracts of more than 15 days. The interest rates do not encourage investors to use repo services provided by securities companies anymore.

 

Meanwhile, the capital coming from banks is now tending to decrease due to the overly high growth rate of credit. The State Bank of Vietnam has reported the high credit growth rate for the first five months of the year at 14.9 percent, while the bank earlier set the credit growth rate target of 21-23 percent only.

 

Most recently, the Government and the State Bank of Vietnam adjusted the credit growth rate target to below 30 percent. As such, from now to the end of the year, the credit growth rate should not be higher than 2 percent per month, or just equal to half of the credit growth rate in May.

 

The State Bank has also asked commercial banks to keep strict control over loans and prevent capital from flowing to stocks. Banks are now lending to securities investors at the interest rate of around 15 per cent per annum, which is not low enough to encourage investors to borrow money to inject in stocks. Meanwhile, limiting loaning to securities investors would be the first choice of banks when trying to curb credit growth.

 

Cash from different sources is not flowing strongly to the stock market, which is not a good sign for the market.

 

After the record trading session, during which 101.7 million securities units were transferred, worth 3,481.1 billion dong on June 10 on the HCM City Stock Exchange, demand has decreased, while supply has been increasing steadily. In the last nine trading sessions, green was seen in three sessions only, while the electronic boards were lit up in red the other six.

 



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