Hanoi - To fight the recent drop in Vietnam's stock market, the country's State Bank may allow commercial banks to lend more money to clients to buy securities, Vietnamese banking officials confirmed Tuesday. Vietnamese investors have complained that a new State Bank regulation limiting lending against securities to 3 per cent of a commercial bank's deposits, which took effect December 31, has contributed to the fall in the country's stock market.
The VN Index has lost 12 per cent of its value since the start of the year, falling from 907.07 on January 2 to a low of 807.74 at Tuesday's close.
The drop comes amid steep and widespread declines in the values of indexes in Asia and around the world, but Vietnamese investors have been quick to blame the new domestic regulation.
"Since Instruction Number 3 was issued, the stock market has become noticeably less busy," said Duong Thu Huong, general secretary of the Vietnam Banking Association, referring to the new regulation. She said many banks had complained that the 3 per cent limit was not "scientific."
"It'd be better to completely ban [lending against securities] than to create a mechanism that depresses the market," Huong said.
The State Bank issued Instruction Number 3 to restrain speculative lending and to prevent a fall in stock values from damaging the country's banking industry.
On Monday, the Vietnamese newspaper Thanh Nhien quoted State Securities Commission chairman Vu Bang as saying that loans against securities dropped from 1.9 billion dollars to 811 million dollars after the new restrictions took effect.
But other investors said the restrictions were not responsible for the market's decline this year, and that other factors were more important.
Andy Ho, managing director of asset management group VinaCapital, said any effect the regulations had on the market would have been seen only before December 31, when borrowers had to liquidate excess holdings to comply with the 3 per cent rule.
Ho said the regulations had contributed to the market's softening before December 31, along with other factors, such as the high initial share prices in the equitizations of large state-owned companies, particularly the highly touted initial public offering of Vietcombank in December. The high initial share price left little room for profit for early investors.
That, in turn, led investors to turn to the real estate market, where properties have shot up rapidly since December.
"When people saw how much money could be made in real estate, it's like the penguin effect," Ho said. "One person goes, and everyone else follows." The hot real estate market has weakened demand in the stock market.
The stock market's decline is due to "many other factors, including the general trend of stock markets in the world," said Nguyen Duy Hung, general director of Saigon Securities Inc. "We cannot blame this regulation for the current situation of the market."
Ho said moves to loosen the restrictions would not necessarily give a boost to the market.
"If the investors feel bullish, they'll go out and borrow," said Ho. "But even if you lift the limit from 3 per cent to 10 per cent, or to 20 per cent, if investors don't feel bullish, they won't borrow money."
