Right on February 1 when the stock market temporarily worked off because of Tet holidays, the State Bank of Vietnam’s governor officially issued Decision No 03 in replacement with Instruction No 3 over securities backed lending and valuable paper discount.
Notably, the move will reduce the pressure and ease the public reaction about the central bank’s regulation on securities lending for a long time.
However, during recent days, all opposite opinions to discuss new lending methods: or tightening up more or expanding. The impacts of Instruction No 3 seemed to be dimmer.
According to Decision No 03, credit institutions who provide securities backed loans must comply with laws on lending and safety terms in lending activity such as they have to issue speciality process on the kind of lending method to monitor and control lending, ensure capital adequacy ratio, reach the bad debt ratio of less than 5%, report lending items periodically to SBV in order to serve internal business administration and supervision.
Secondly, risk coefficient of securities loans, which is subject to the minimum capital adequacy ratio, is adjusted to 250% against the previous 150%, accordingly credit institutions will have to consider and decide to lend cautiously. Thirdly, total securities loan is not allowed to exceed 20% of credit institutions’ chartered capital. The lending monitoring measure will enclose risks in securities lending with chartered capital scope of credit institutions, and avoid the situation that total outstanding loans will increase dramatically if the regulation on securities lending is calculated based on total outstanding loans as previous. Therefore, many banks with outstanding loans at a low ratio against the chartered capital will be able to continue lending. Lastly, as the new lending scheme took affect, credit institutions who can meet all aforementioned terms can continue providing securities backed loans.
Finally, after seven months of circulation, Instruction No 3 officially ended its mission.
The SBV said that, if the measure to curb securities backed loan equalling to 3% of total outstanding loans continued to be maintained, the Instruction No 3 would cause disadvantages for the stock market and business operation of credit instructions. This is the main reason for the central bank to release Decision No3with the new method to calculate securities lending ratio.
Regarding the method of calculating the securities lending ratio based on chartered capital, there are many opposite points of view. However, the fact showed that both old and new methods of securities lending calculation, banks still can supply a fairly amount of capital for securities investment. Just in line with previous Instruction No 03, the whole banking sector’s securities lending ratio also reached 1.37% of total outstanding loans, equalling to 11.4 trillion dong last year.
And under Decision No 03, the SBV stated that this was one of measures to ensure the lending safety and help the stock market develop stably and healthily. With the new lending scheme, securities backed loans will continue to be monitored closely.