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State Bank mulls lifting controversial lending cap   2008-01-22 - Vietnam News Agency

The State Bank of Viet Nam is scrutinizing whether to lift the cap on commercial bank loans against securities collateral after a meeting with the State Securities Commission and local commercial bank representatives last week aimed at finding ways to reduce the exposure and risk of banks which offer such loans.

HA NOI — The State Bank of Viet Nam is scrutinising whether to lift the cap on commercial bank loans against securities collateral after a meeting with the State Securities Commission and local commercial bank representatives last week aimed at finding ways to reduce the exposure and risk of banks which offer such loans.

State Bank Directive No 03/2007/CT-NHNN of May of last year provided that loans made for securities against collateral in the form of securities could not exceed 3 per cent of a commercial bank’s total loan portfolio.

The regulation was activated by banking regulators’ fears that stock market volatility would pose high risks to the nation’s banking system.

However, the directive was subsequently blamed for the downward trend of the stock market in the past few months, drying up a ready source of domestic capital for securities investors, according to Banking Association general secretary Duong Thu Huong.

Huong also admitted that many commercial banks had complained of difficulty complying with the directive.

Some banks, it was reported in the media, complied with the three-per-cent rule not by reducing their outstanding loans against securities collateral but by increasing their lending against other forms of collateral, such as real estate, thereby lowering the proportion of their portfolios represented by loans against securities.

"The ratio of loans for securities trading at each commercial bank should be different depending on its management capacity," said Huong.

It was indispensable to control such loans, she admitted, as the securities market was high risk. However, control measures needed to be more flexible.

Major banks with skilled management capability were competent to manage risk from lending for securities investment, Huong said, and he urged the central bank to issue regulations suited to different banks instead of for the entire banking system.

Several countries ban commercial banks lending for securities investment, she noted, while others allow the lending but to a limited extent.

"Securities and monetary markets are closely related," Huong said. "If relevant authorities were not willing to fully ban lending for securities investment, they should issue more systematic and flexible regulations to control the lending in a way that ensures the safety for the entire banking system while stimulating development of the securities market."


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