Responding to the State Securities Commission’s concern over the market, local commercial banks say they are confident they can control their securities mortgaged loans so that financial risks will not heighten across the banking system.
Asia Commercial Bank, a leading commercial bank in securities mortgaged lending, says it has kept loans under control with strict lending conditions, where loans are not allowed to exceed 50% of the market price of the shares and 150% of face value of shares.
“With the 4% hike in the market price of shares currently, the risk is not a serious concern,” said an ACB official.
The Bank for Investment and Development of Vietnam (Bidv) conducted a pilot scheme at its Hanoi and HCM City branches to lend to people to invest in securities, accepting securities as a mortgage with maximum lending of 150% of shares’ face value. After a year the bank had lent over 100 billion dong (US$6.2 million).
“The lending for securities purchases is under control and safe and it is too small in terms of value to affect to the entire bank’s lending operations,” said a Bidv official.
Lending for investment in securities is still small, while mortgaged securities must be from healthy joint stock companies with the state holding from 51% stake. Lending to staff of listed companies to buy initial public offerings with mortgages of fixed asset including property and automobile is also safe. Commercial banks such as Military Bank, Techcombank and Dong A Bank, are also offering mortgage lending to the staff of listed firms. Techcombank, for instance, will lend at 35% of shares’ market price. The bank will also ask debtors to have additional assets mortgaged if share price is down by 40%.
One of the country’s largest state-owned commercial banks, the Bank for Foreign Trade of Vietnam, however, has stayed way from the lending scheme required securities mortgages out of caution. The bank only provided loans to staff working in An Giang Agifish joint stock company two-years ago to buy initial public offerings, and has made no such loans since.
“I think the status of the scheme not as serious as people may imagine because each bank must ensure debts being paid back,” said a Vietcombank official.
“Vietcombank has not yet issued any direction on providing loans with mortaged securities,” she said.
SBV Banking Development and Strategies Department director Le Xuan Nghia said his department has only received warnings from other organisations and doesn’t know the full situation, but argues investigations would premature. The State Securities Commission warned on instability in the banking system once already, when the stock market heated up in early April.
The reason for the warning was the increasing VN-index in the local market. The index peaked at 551.60 points last Thursday and is expected to reach 570 soon, as it did three-years ago.
Thirty-one stocks on the bourse jumped consecutively last week, of them 17 went up by 4% in value.
The commission estimates that there are 13 million shares in pledges for lending from commercial banks for a total value of 751 billion dong (US$47.2 million).