The trading volume on both stock bourses is increasing sharply and many share codes saw a rise in prices. As a result, the stock brokerages are inviting investors to borrow more securities-backed loans.
Some banks stopped receiving securities mortgage borrowing applications because of running out of the allowable lending ratio under SBV’s regulations. However, the financial lever service still is conducted by a lot of stock brokerages themselves. Even few brokers are willing to borrow banks’ loans for business capital and then re-lend to stock players. To carry out the specification, brokers will sign an investment cooperation agreement with investors at the corresponding capital ratio 50 percent-50 percent in cash because under current laws, stock companies are disallowed to launch securities mortgage lending service.
For example, if a customer has one billion dong available with him, stock brokerage will lend one billion dong to that investor. The capital contribution ratio (of investment cooperation agreement) can be changed, like 40 percent-60 percent or even stock companies can lend up to 80 percent (if having one billion dong, investor can borrow eight billion dong from brokerages). Securities mortgage loan rate now stands at 18-21 percent pa with the lending time of 30-60 days. Even some brokers do not limit the lending time or credit limit. The more importance is that investors have enough stocks in accounts as mortgaged assets.
Especially, VIP and familiar customers of stock companies will easily borrow more money with more preferential rates. General Director of HCM City based stock company admitted that stock players can lend securities backed loans without lending limit at their firm however the negotiated loan rate must be higher 18 percent pa.
Trading value of both floors during the last one week increased continuously and reached nearly four trillion dong a session. It is questioned “where did the source of money come from?” According to Huynh Anh Tuan-general director of SJC Securities Co, the money source provided to securities trading may come from investors’ available capital kept in accounts when the market was gloomy. When the market surges, the money immediately is poured into trades. Also, the money can be soured from new money flow of old investors and new players. Furthermore, the money flow from the brokers’ securities backed loans is on upturn.
The ratio of loans in stock trades on the market is jumping along with highly potential risks because the stock market can tumble any time like Q4 of 2009 when VN Index plunged from 630 pts down to 434 pts. By that time, investors will have to offload stocks (loss cut) to pay securities backed debts.
Thus, investors should be cautious about potential risks as seeking capital for securities investment.