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Vinasecurities argues in favor of new lending mechanism
The new securities lending mechanism will negatively impact the stock market because it limits the capital securities investors can borrow. However, long-term benefits will prevail.
VinaSecurities has released their new analysis on the most current mechanism on securities lending which said that the State Bank of Vietnam made a wise move in applying the new policy.
The central bank has decided the maximum outstanding loans commercial banks are allowed to lend to securities investors must not exceed 20% of the banks’ chartered capital. The new mechanism has replaced the previously applied scheme, under which, commercial banks’ loans to securities investors must not exceed 3% of total outstanding loans.
In fact, the central bank does not intend to raise the cap as people expected they would. It only changes the way the cap works to better control securities loaning.
It is clear that the central bank’s move to impose the new mechanism will actually reduce the capital for securities loaning.
VinaSecurities has estimated that the policy will make the total capital flowing into the stock market reduce by VND7.5tril ($468.75mil).
However, the securities company believes that the decision will ‘do more good than harm’. In the time to come, commercial banks will increase their chartered capital more quickly to allow them to lend more towards securities investing.
According to VinaSecurities, commercial banks’ chartered capital will increase by 30-50% per annum, and this will allow the banks’ loans to securities investments increase by 50%, which is even higher than the annual securities loaning growth rate of 30% seen under the previously applied mechanism.
As such, in the short-term, the decision by the central bank will negatively impact the stock market but will significantly benefit in the long term.
VinaSecurities commented that the State Bank of Vietnam did not intend to loosen the credit tightening policy, but is continuously focused on curbing inflation. The inflation rate of 12.6% is a high obstacle the Government must surmount and it is not the time for the monetary policy to be loosened to support the stock market.
“This is really a wise move by the State Bank,” the analyst said.
Regarding the lending of commercial banks in the time to come, VinaSecurities mentioned the participation of nine new members on the market, including Lien Viet Bank (which has VND3,300bil or $206.25mil) in chartered capital), PetroVietnam (VND5tril or $312.5mil). Moreover, it is expected that 5-10 new banks will be licensed in the next two years.
With the presence of new banks and the lending growth of existing banks, VinaSecurities thinks that the securities loans may reach a growth rate of 50% per annum over the next few years.
VNN
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