To control the amount and quality of credit consistent with the Prime Minister’s direction issued at the 2007 conference on the banking sector and enhance regulation of the securities sector, the Governor of the State Bank issued Directive No. 03/2007/CT-NHNN on May 28, 2007, to direct credit institutions and State Bank units to apply measures controlling the amount of loans made for securities investment and trading.
To control the amount and quality of credit consistent with the Prime Minister’s direction issued at the 2007 conference on the banking sector and enhance regulation of the securities sector, the Governor of the State Bank issued Directive No. 03/2007/CT-NHNN on May 28, 2007, to direct credit institutions and State Bank units to apply measures controlling the amount of loans made for securities investment and trading.
As observed by the State Bank of
Securities investors borrowing from banks would be requested by banks to make larger security deposits at banks as collateral for their loans whenever stock prices go down by 30%, or they would be required to sell out their stocks at whatever price, causing potential instability in the market.
Under this Directive, banks’ loans receivable and discounts of valuable papers for securities investment and trading are now capped at 3% or less of their total loan balances.
Banks are also ordered to discount valuable papers for securities investment or provide loans secured with the mortgage of stocks in strict accordance with regulations on lending and State Bank guidance; to provide loans to securities companies they do not control in strict compliance with lending regulations promulgated together with the State Bank Governor’s Decision No. 1627/2001/QD-NHNN of December 31, 2001; to assess and tightly control loans in order to ensure timely payment; discount valuable papers for securities investment and trading in accordance with the regulation on discount and rediscount of valuable papers under Decision No. 1325/2004/QD-NHNN of October 15, 2004; and not to discount stocks.
Most banks are reportedly lending money for securities investment in excess of this limit, so the new rules might have a negative effect on short-term investors but are expected to help minimize risks for both banks and investors.
(Source: VietnamLaw)
