Stopping sales of mortgaged shares the right move
(Updated: April 01, 2008)
Le Xuan Nghia, Director of the Banking Development Strategy Department under the State Bank of Vietnam, applauds the decision on stopping the selling of mortgaged shares.
What is your comment about the decision on asking banks to stop selling mortgaged shares?
Among the recent government measures to rescue the stock market, lowering the daily trading band and asking banks to stop selling mortgaged shares prove to be the very good ones.
It would be very dangerous if commercial banks continued to sell mortgaged shares, because investors would suffer heavily and lose confidence in the market. If the government and commercial banks do not have prompt actions to support the market, the problem will spread to the money-saving sector.
If the stock market keeps sliding and investors lose confidence in the financial system, people and businesses will withdraw money from banks. If so, the difficulties banks will have to face will be even bigger.
Do you think that the State Bank of Vietnam needs to support commercial banks, so that banks can stop selling mortgaged shares but still ensure liquidity?
People thought that banks have provided big loans to fund securities investment deals. However, it is not true. In fact, the biggest outstanding loans for securities investments were VND20tril, or 1% of the total assets of Vietnam’s banks. Currently, the securities loans are just VND9-10tril, or 0.5% of the total assets.
Therefore, I don’t think that if banks stop selling mortgaged stocks, that this will affect the liquidity of banks.
The government has asked the State Bank of Vietnam to negotiate with every commercial bank on stopping the selling of mortgaged shares. In facts, banks have been doing what they have been told to do. They well understand that if the government intervenes in the market with reasonable measures, the stock market may rebound and the stock prices will not decrease dramatically. Therefore, in the long term, banks’ liquidity will not be threatened.
You may know that the government has decided that if commercial banks face problems in liquidity when implementing its instructions, they may seek capital from the central bank with the set interest rates of 8-9%.
The State Bank has pledged to use open market operations in order to ensure the liquidity of commercial banks. I think that this commitment is strong enough to persuade banks to stop selling mortgaged shares.
Besides, commercial banks are wise enough to understand that if they continue selling mortgaged stocks, everyone will suffer. Meanwhile, if the measure can help recover the market, every one will benefit, including banks.
Do you think that such an administrative intervention will create a precedent, which comes contrary to the market economy’s rules?
In some cases, if we had anticipated the situation better, we would have not had to regulate the market with administrative orders. However, in fact, the capability of giving forecasts of Vietnam remains very weak. Therefore, the policies made by ministries and branches sometimes do not bring the desired effects.
Do you think that the government’s measures are powerful enough to recover the market in the context of the ‘oil slick’ of the international financial crisis?
I can see the growing tendency of foreign investors transferring capital into Vietnam. Foreign investors have many choices now. They may buy in the stocks which are being sold at very low prices to get profit later. They may buy government bonds, which have zero risk and very attractive interest rates. They may also eye the stocks of very important fields of the national economy.
If the government’s measures can help maintain the market for a certain time, foreign investors will join the market more actively, which will provide a firm foundation for the market to recover.
In the current conditions, protecting the market from dramatic falls is a must, though we may have to pay a high price for this.
(Source: TBKTVN)