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The central bank said it has become necessary to control the securities trading activities of commercial banks since banks have injected too much money in securities trading deals in the last time, which proves to be very risky.
An official from SBV said that commercial banks have been involved more deeply in high-risk business activities, including securities trading, which has urged the central bank to amend Decision 457 dated April 2005, stipulating the safety measures in the operations of credit organizations.
Under the new regulations to be enacted in January, commercial banks will not be allowed to fund the securities trading deals of securities companies belonging to the banks . Commercial banks have the right to lend to securities companies that do not belong to the banks, but the loans must be mortgaged with assets.
Experts say that there are three big influences on the stock market: investment funds (especially foreign funds), state owned corporations, banks and securities companies . Commercial banks themselves can set up securities companies and inject money in these companies.
As they have high financial capability and access to information channels, banks have big advantages in the stock market, which is unfair to other securities investors, the official said. The central banks have its reasons for tightening banks' securities trading deals, as trading securities proves to be very risky, and can threaten the operation of the whole banking system.< /p>
The SBV's regulations will not directly interfere in the trading activities, they just aim to force the banks to spend less money on securities trading deals, the official added. However, he acknowledged that the decision may cool the stock market down as it may stop the cash flow into the market.
A representative of the Legal Department under SBV said that the new regulations, if promulgated, would not be contradicted to the Law on Credit Organization. The law says that commercial banks can set up securities companies, but the banks' and the companies' operations must be independent. However, commercial banks have not followed the regulation. One state owned bank has loaned its securities company VND2tril ($125mil).
Soon after hearing the news about the possible enactment of the new regulation, Director General of VP Bank Le Dac Son convened a meeting late last week and decided to stop funding the securities trading deals of the bank's securities company.
Mr Son has applauded the decision by SBV, saying that the move was necessary at this moment, when the stock market has become overly hot. Those who borrow money to invest in securities do not aim at long-term investment, they are just speculators.
Now, when listing companies announce their business performances, which may not meet the speculators' expectations, the stock market may cool down dramatically, said Mr. Son.
The draft decision replacing Decision 457 was submitted to the SBV Governor on December 29, and is expected to be enacted in early January.
The management of the stock market and securities companies and investment funds will be an important topic at the Government's regular meeting in January 2007.
Source: VnExpress, 3 January 2007
