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Looser bank risk rules to boost market

Update: April, 11/2012 - 10:19

HA NOI — Possible changes in regulations governing prudential ratios applicable to banks have given a boost to the securities market.

"The expectation of investors on changes to Circular No 13 on prudential ratios, issued by the State Bank of Viet Nam in 2010 – particularly the reduction in credit risk ratios applied to real estate and securities loans from 250 per cent to 150 per cent – has been a primary supporting factor for the market lately," said Bao Viet Securities Co analyst Nguyen Xuan Binh.

The decrease in credit risk ratios would improve the capital adequacy ratios (CAR) of banks, which would in turn help them increase their lending to the non-manufacturing sector, including securities investors, explained ACB Securities Co analyst Nguyen Thi Lan Huong.

Reducing the risk factor would also reduce opportunity costs for securities and real estate loans, helping lower borrowing interest rates for these loans as well, Huong said.

Although credit growth for unencouraged sectors – including securities and real estate investment – had been capped at 16 per cent, recent trading sessions had demonstrated the positive influences on the market of this news, commented Petrovietnam Securities Co analysts.

The draft circular would also eliminate a number of regulations related to securities lending, such as a ban on loans by banks to affiliated or subsidiary brokerages, a ban on unsecured loans for securities investment, and a requirement that total outstanding loans and discounts of valuable papers for securities investment not exceed 20 per cent of the bank's charter capital.

"These are very good signs for the financial market," Huong said.

However, she added, with the poor quality of credit pervasive throughout the banking system, increasing bad debt remained a great concern for banks.

"The revised circular will therefore probably show limited effectiveness," she said.

"We cannot hope that money flows into the market will surge if these amendments are approved," agreed analysts for the financial information website While anticipation of the changes has already helped unfreeze cash flows, the said, they "will not bring about as many effects as expected."

A higher loan-to-deposit ratio was also expected to slow any increase in lending. — VNS

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