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State Bank rethinks controversial securities lending cap   2008-01-30 - VNS

The State Bank of Viet Nam is considering a revision of the controversial regulation limiting commercial bank loans against securities collateral.

HA NOI — The State Bank of Viet Nam is considering a revision of the controversial regulation limiting commercial bank loans against securities collateral.

Under a draft decision being circulated for public comment, the limit on such loans of 3 per cent of a bank’s total outstanding loan portfolio would be replaced by a 20-per-cent cap computed against the bank’s charter capital.

"Under a new cap based on charter capital, only banks in good standing with large charter capital, like State-owned banks, Asia Commercial Bank and Sacombank, would really benefit," said Ngo Minh Duc, an analyst with EuroCapital Securities.

"Some 7-8 per cent of total assets or total outstanding loans would be much better for all banks, allowing even small banks to have a market share in this kind of lending," Duc added.

The draft regulation would reduce banks’ exposure to risk by requiring them to maintain risk provision funds against such loans equal to 200-250 per cent of the value of the collateral, up from the current ratio of 150 per cent.

Along with the loosened cap, banks would be required to maintain a capital adequacy ratio (CAR) of 8 per cent of total capital and a bad debt ratio of no more than 5 per cent of total outstanding loans.

The additional requirements would also attempt to close loopholes in Decision No 3. Banks last year complied with that decision’s three-per-cent ratio by increasing loans against other forms of collateral rather than reducing loans against securities.

These actions pushed credit growth to 70.6 per cent in HCM City this past year, against Government targets of only 30 per cent.

The International Monetary Fund has continued to recommend measures to control lending against stock collateral. The central bank would try to support healthy stock market development in keeping with international standards for risk management, said State Bank deputy governor Nguyen Dong Tien.

Stock market bounce

Meanwhile, Minister of Finance Vu Van Ninh and State Securities Commistion have Vu Bang called on the State Bank to loosen the cap and help boost the drooping stock market.

Word-of-mouth about the State Bank’s intent to revise Decision No 3 already seemed to encourage investors yesterday, with indices at both the HCM City Stock Exchange and Ha Noi Securities Trading Centre rebounding yesterday.

VN-Index surged 26.54 points to poke its head back above the 800 level, closing yesterday at 811.61. In Ha Noi, the index HaSTC-Index gained 6.84 points to end the day at 278.6.

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