Previously, before banks entered the interest rate race, they lent for securities investments at 1.3-1.5%/month, higher than the average rate due to the high risks of the loans. However, as banks now have to mobilise capital at higher costs, they have raised the lending interest rates for securities loans to 1.8% per month.

 

 

Nguyen Thanh My, an individual investor, related that in the third quarter of 2007, she borrowed money at Sacombank to buy shares of a bank. The mortgaged asset was the shares of the bank, and the interest rate was 1.3%/month.

 

The credit contract has not matured yet, but Sacombank has informed her it will raise the interest rate to 1.7%/month.

 

My said that she cannot sell shares to pay bank debts at this moment because the prices of stocks, mostly OTC shares, are all decreasing and unsalable.

 

My is just one of the securities investors suffering heavily from banks’ policy on tightening credit and the high interest rates. Besides Sacombank, all other banks now are applying very high lending interest rates for securities loans at 1.8% per month.

 

In credit contracts signed between banks and borrowers, there is always a provision which allows banks to adjust interest rates when it deems necessary.

 

Luu Duc Khanh, General Director of ABBank, said that the provision exists in all credit contracts, because capital mobilisation costs become higher, and clients needs to share difficulties with banks. Khanh said that banks would incur losses on contracts which do not include the provision on interest rate adjustment.

 

Many investors, unable to pay high interest rates and pay additional security money, have decided to give up their mortgaged stocks. Under the credit contracts, once stock prices go down to below certain levels agreed upon by the two sides before signing contracts, borrowers have to pay additional security money. If investors don’t, banks will automatically sell the mortgaged stocks to take back money.

 

As many investors have not paid additional security money, even when the stock prices dropped by 50-70%, banks have had to sell a lot of stocks, making the market fall down further. The State Securities Commission, in an attempt to rescue the market, had to release the decision to lower the daily trading bands to 1% and 2%.

 

Despite the lackluster stock market, many banks still provide new securities loans mortgaged by shares as they find the business profitable.

 

Western Bank, for example, joined forces with several securities companies to push up securities loaning after it raised its chartered capital from VND200bil to VND1tril. Now the bank can lend up to VND200bil (20% of chartered capital) for securities investments instead of VND40bil.

 

A lot of banks are planning to raise their chartered capital this year, partially because they want to expand securities loaning.

 

However, analysts say, as the lending interest rates are increasing while the stock prices are decreasing, and thus cannot bring fat profit to investors, not many securities investors want to borrow money from banks now.

 

(Source: DTCK)

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