State Bank jitters over share trader bank loans

Le Xuan Nghia, general director of the State Bank’s Banking Development Strategy Department, said the State Bank had given strong warnings and guidelines to commercial banks about lending to stock market traders, but banks had continued providing finance to stock traders.
“We are very concerned about the current commercial bank loans for securities trading,” Nghia said. The exact figures of commercial bank loans to share traders were not revealed.
Nghia added that the State Bank might need additional effective measures to better manage the inflow of local commercial bank loans to the stock market to keep banking operations efficient and healthy.
“Banks could face lower profits and other risks when they rush to raise interest rates to mobilise enough capital for banking activities,” Nghia said.
Several bankers may oppose tighter controls over bank loans for share trading, countering that their lending rates were still at safe levels. However, the International Monetary Fund in Vietnam said it was necessary to curb lending growth among commercial banks as these investors have partly contributed to the stock market boom.
“Unchecked bank lending for the purchase of stocks, together with surging FII inflows, may continue fuelling Vietnam’s stock market boom, thus simultaneously increasing the banking system’s exposure to stock market risk,” the IMF said in a report.
The IMF said that a bank that carried out operations in the stock market without taking adequate steps to identify and control all material risks involved in such operations, engaged in unsafe and unsound practices should be subject to appropriate prompt corrective action and penalties.
“Only banks with strong credit and market risk-management procedures and with well-trained officers and technical staff, should in principle be allowed to extend credit for share purchases or take other risks related to the stock market,” the IMF stated.
Earlier this year, the State Bank instructed domestic banks to stop lending to their securities affiliates or from lending without guarantees for securities investment in order to prevent stock market speculation and to reduce bank risks.
The total bank lending for securities is estimated to represent an average 3 per cent of the banking system’s total outstanding loans and could be high as 9-10 per cent at some commercial banks.