Margin calls loom as June 30 draws near

State Bank statistics showed that by the end of 2010, banks had lent VND10,000 billion ($483 million) to stock investments.

The State Bank early this year requested banks to reduce the non-production loans by 22 per cent of each bank’s total outstanding loans by June 30 and 16 per cent by the year’s end.

Banks have been recalling non-production loans to meet requirements, causing the stock market to fall in May, with analysts pinpointing margin calls behind the fall.

Huynh Anh Tuan, SJC Securities (SJC) general director, said fears over additional margin calls before June 30 were understandable as banks’ equities investment loans remained relatively high. SJC stopped signing new contracts for lending stock investment three weeks ago.

Tuan added he did not know the exact amount of bank loans to stock investments, but estimated 40 per cent of the total sums came into listed stocks, while 60 per cent was invested in unlisted stocks.

“Therefore, margin call pressures are true, but not as serious as forecasted by analysts.  We are not sure that all banks will recall all non-productions loans to meet State Bank requirements by June 30,” said Tuan.

Bui Thi Minh Tam, Saigon Hanoi Securities (SHS) deputy general director, said credit for stock investments came from investment cooperation between securities firms and investors, and investors borrowing from banks. For bank loans, when stock prices fell to certain level, the stocks  would be sold to recall capital.

“The banks will not wait until June 30 to recall loans back. I think that the June 30 deadline is not seriously affecting equities market but property market only as loans to stock investment are much lower than property investment,” said Tam.

At SHS, banks stopped lending to equities investment two months ago while old credit contracts no longer existed, according to Tam.

Nguyen Viet Quang, analyst with VnDirect Securities, said the June 30 deadline was not a concern as banks are boosting loans to production sectors and non-production loans would be apparently reducing.

“The current market is relatively safe for selecting stocks with prices to earning (P/E) ratio of around four and dividend ratio of 20 per cent. Stocks of securities firms and property with prices having fallen sharply would be choice,” said Quang.

Market analysts said loans from securities firms to clients under the investment cooperation should be closely watched as this sum was much higher than bank loans and securities firms’ risk managements were not so good as banks’.

In a related development, a VIR source found that as late April 2011, a half of banks in Hanoi reported non-production loans of over 22 per cent, particularly 50 per cent at some banks.