Customers make transactions at BIDV's Quang Tri branch. The bank's research centre has asked authorities to review the regulation in Circular 36 which limits lending by banks for stock investments to a maximum of five per cent of their charter capital. — VNA/VNS Photo Tran Viet

As it is now written, Circular 36 calls for limiting money flows to the stock market through curbing bank loans, which took effect on February 1.

Specifically, the circular states that banks shall not be allowed to offer loans for securities investments beyond 5 per cent of the charter's capital. According to BIDV, this will adversely affect not only the stock market, but the domestic economy in general.

"A tightened investment resource will hammer the growth of the market in the short – and medium-term, thereby slowing the process of equitising State-owned enterprises (SOEs) and restructuring the economy," the bank noted.

The bank explained that lower liquidity due to a shortage of money would reduce investors' interest in the initial public offerings of SOEs. In addition, the domestic appetite would, in turn, make foreign investors hesitate as they consider investing in Vietnamese shares.

Therefore, BIDV proposed three recommendations.

First, the lender proposes that the Government should revise the implementation time of the circular's provisions. "The process of arranging margin financing needs a longer time […] to avoid a shock to the market," it wrote in the report.

Second, BIDV proposed that the State Bank of Viet Nam gradually reduce the securities lending rate. As the domestic stock market is moving toward becoming an emerging market, the State should encourage providing more financial resources, noted the bank.

And third, the amendment for increasing foreign ownership in public companies should be enacted soon.

Previously, the Viet Nam Association of Securities Business and other banks also recommended a delay in the enforcement of the circular. However, the central bank decided to implement the regulation as planned.

Infonet.vn cited Tran Dac Sinh, president of the HCM City Stock Exchange, as saying: "I support the changes in the circular, but we should have a relevant roadmap."

The stock market was intended for raising funds in the long term, according to Sinh. He agreed that banking resources should not be used for securities businesses. However, the drastic measures called for in Circular 36 would agitate the market for some time. — VNS