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Good signs of securities investment
After a month which saw a highest growth of the securities market since early this year, a number of commercial banks have intensified their activities concerning stock mortgaged borrowing. Should this be done or not in the current situation?
Bui Kien Thanh, a financial expert who provides consultations on diplomacy and economic issues for the Vietnamese Government, talked about the issue.
Commercial banks have now started to provide loans for securities investment even when many business enterprises urgently need loans for production and business activities from now till the end of this year. What do you think about that?
The State Bank of Vietnam (SBV) has devised specific regulations on commercial banks’ activities related to the borrowing capital level for each area of investment and the limit of borrowing capital for securities investment.
Provisions for commercial bank loans are in line with regulations stipulated by the SBV. However, such activities should directed towards the best interests of banks, investors and the country’s economic situation.
Currently, the securities market has stabilised. If the macro economy develops well, the securities market will go smoothly. However, it is difficult to predict what the situation will be and what risks there will be for the securities market.
From your point of view, should or should not banks continue providing loans for securities investment?
The securities market is not really stable despite the VN-Index jumping to more than 500 points. However, it is essential to consider the real value of the securities market by defining which companies make a good profit based on the price/earnings ratio (P/E) and their operational process.
The problem is that investors in Vietnamese securities market do not take into account companies’ business performance. There is not any securities market in the world like the Vietnamese market whose shares are bought at the highest level or sold at the lowest level. This common occurrence is making it difficult to keep the market operations stable.
Due to such an unstable situation, banks may face risks if they provide borrowing capital for securities investment at an interest rate of more than 20 percent. Therefore, investors need to make their business profitable so that such a high interest rate can be paid. Securities investors must earn 50-70 percent of their profit in order to make interest payments to banks. This means that there will be high risks for securities investors.
If banks are only interested in making high profits by providing a huge volume of borrowing capital, they may be confronted with high risks and liquidity will be lost.
Considering loans carefully
Many banks said that loans are within the SBV’s limit. But will it create a new mass lending for securities investment, badly affecting the securities market?
A number of problems arise but the important things are what the targets are for the commercial banks and how the SBV issues warnings. No problem will arise if commercial banks lend within their limit.
In fact, many banks have falied to seriously investigate borrowers’ targets. They did not know how borrowers used loans or whether they used them to buy houses or stocks.
Banks just consider whether borrowers have a mortgage. Therefore, if banks continue lending and borrowers pour money into the securities market it will like pouring oil on the flames.
However, it does not mean that lending for securities investment will be eliminated.
What should Vietnamese banks focus on during their operations?
Other banks in the world provide around 200-300 services while Vietnamese banks just have 5-6 services such as money deposit and lending, instead of providing loans for businesses to develop steadily and implementing the State policies to control inflation. Both SBV and commercial banks did not undertake their all of their duties and functions. Commercial banks just take care of their turnover and profit.
Meanwhile, banks in other countries offer consultancy to businesses to help them manage their capital effectively to meet targets for sustainable production and trading. Therefore, the duty of banks is to help borrowers use loans effectively by adopting suitable lending plans.
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