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Banks pour hundreds billions VND into stocks   2008-09-09 - VNE

Big banks have announced they are resuming loaning to fund securities investments as they can see new opportunities with the stock market showing signs of recovery after a long period of falling down.


Saigon Thuong Tin (Sacombank) was the pioneer in resuming securities loans. It announced on September 1 it was launching a new programme, CK300, on funding securities investments. The bank plans to disburse VND300bil for the programme, under which, every client can borrow up to VND5bil for two months to make investments in stocks.


Explaining its decision, Sacombank said that the bank decided to resume loaning after the national economy began showing signs of recovery, and as the VN Index has been rising continuously, while stocks’ liquidity has considerably improved.


Meanwhile, Eximbank yesterday decided to raise its securities loaning limit to VND800bil from VND200bil, which is nearly equal to 3% of total outstanding loans of the bank. Clients will be able to access bank loans if they make investment in stock items on the bank’s list. Clients can borrow up to 40% of securities’ market prices.


Some other joint-stock banks are reportedly seriously considering plans to resume securities loans after a long period of tightening loaning due to the stock market’s falls.


Kieu Huu Dung, a banking expert, former director of the Bank and Non-bank Credit Institution Department under the State Bank of Vietnam, said that it is the right time for banks to provide securities loans again.


Dung said that the VN Index may regain the 600-650 point threshold, while securities investors are thirsty for capital. “However,” he said, “banks should be cautious with the loans, while paying appropriate attention to risk management. Banks should only fund investments in good stock items.”


An official from Eximbank said that the bank would only provide loans worth 40% of shares’ market values at maximum to minimise risks. Previously, bank loans were always valued at 70% of shares’ prices.


He said that the VN Index is now hovering around the 600-point threshold. Risks will only occur if the market falls by 60%, or the VN Index falls to 240 points.


Eximbank’s list of stocks accepted as mortgaged assets comprises 100 items, including 80 listed shares, OTC shares, bonds and other valuable papers.


The resumption of securities loaning has sparked worries that the market will, once again, grow too rapidly as it did one year ago, when people rushed to buy stocks. However, the official from Eximbank has denied the possibility.


“3% of total outstanding loans for funding securities investments is not big enough to bring the market to a hot development period,” he said.


He added that banks have the right to decide how to do business and to use their capital in the most effective way.


“It would be very bad if all banks turned their backs on securities,” he said.


Ngo Van Minh, Analysis Director of Euro Capital Securities Company, applauding the resumption of securities loaning, said that the loaning will help the market improve its liquidity, and help investors access new capital sources.


However, Minh has warned that risks will occur when the market falls. The investors who borrowed money from banks will be under heavy pressure to sell stocks to get money to pay bank debts. In this case, the market could fall further.


An official from the State Bank of Vietnam said that the central bank does not prohibit commercial banks from providing loans to fund securities investment, but does not encourage them to do that. In the golden age of the stock market, some VND20tril worth of capital flew into stocks, while the figure now is several trillions VND only.


While big banks are noisily moving ahead with the resumption of securities loaning, small and newly-established banks are still quiet. General Director of PG Bank Nguyen Quang Dinh said that the bank focuses on funding production and business.


Dinh said that the bank will not think of expanding securities loaning until the State Bank further tightens monetary policies to limit capital. The bank is now providing VND40bil to securities investors, or 2% of its total outstanding loans.


Securities investors anticipated that banks would resume securities loaning as the stock market has recovered. However, not everyone feels happy with the banks’ decision.


Hoang, an investor, who has an account at Vn-Direct Securities Company, related that he would not borrow money to buy stocks at this moment. Hoang related that he once incurred a heavy loss when he purchased stocks with borrowed money and the prices of the stocks dropped dramatically.


Hoang said that no one can make successful investments with borrowed money because the investors who make investments with borrowed money are always under pressure and make unwise decisions.


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