In a July directive, the State Bank of Vietnam (SBV) ordered that commercial banks would have to reduce their securities-backed lending ratio to three percent of their total outstanding loans before 2008.

“The banks are aware of the directive, which aims to stabilize the market. However, it will be difficult for us to follow the directive strictly,” said Tran Dinh Trien, head of the Vietnam Banks Association’s legal department.

Trien said many association members had given loans in contracts to stock market investors before the directive was issued.

The contracts were signed with specific maturity dates and banks would be unable to break their contracts or require clients to pay back loans that have not yet reached maturity, said Pham Anh Dung, general director of Saigon Commercial Bank.

Dung said it would be very difficult for commercial banks to meet the SBV’s deadline.

According to Trien, many HCMC commercial banks’ securities-backed loans are too high to be reduced to three percent by the end of the year.

He refused to say how high the ratios were, but said the association voices its members’ worries and is asking the central bank to reconsider its decision.

Unofficial sources said the ratio of securities-backed loans in some commercial banks is as high as 10 percent.

A representative from the Asia Commercial Bank (ACB) said the bank, which is among HCMC’s biggest loans-on-securities granters, has tried to reduce its ratio but has been unable to meet the new regulation’s requirements.

Some commercial banks said they have increased their total loans to indirectly decrease the ratio, though they know the practice is risky.

Another early November legal issuance from the central bank reiterated the initial directive’s line.

The directive aims to prevent a bubble from occurring on the country’s stock market.

The central bank has said it was monitoring commercial banks and would apply heavy penalties to those found in breach of the directive.

Commercial banks have also complained that the directive has limited them from granting loans on stocks for non-stock market investors.

Real estate investors interested in depositing stocks to obtain loans for real estate investment are a large group of borrowers whose potential has been cut by the directive.

The ratio of loans for real estate is high at HCMC commercial banks, according to the SBV HCMC branch head Nguyen Ngoc Thang, who released last week that such loans account for more than 10 percent of the city’s commercial banks’ total outstanding loans.

Thang said that such loans were threatening the city’s financial and credit system.

Reported by Minh Quang