Finance Ministry measures expected to lure capital flow to stock market
The Ministry of Finance (MOF) has proposed raising the limit of credit for securities investments as a solution to help businesses seek capital.
The ministry, in its report on solutions to help enterprises overcome the epidemic, has suggested measures to encourage stock market development.
The measures include delaying shareholders’ meeting organization time for threee more months (businesses have to organize shareholders meeting prior to October 1) ; shortening the process of announcing treasury stock purchase (1-2 days instead of 7 days); allowing foreign invested enterprises (FIEs) which can meet requirements to list shares in the stock market; and raising the credit limit for securities investments.
The current limit is 5 percent of banks’ charter capital.
The finance reports of commercial banks do not specify the outstanding loans provided to fund securities investments.
However, the State Securities Commission (SSC) and the State Bank of Vietnam (SBV) estimate that the current outstanding loans are VND30.542 trillion. Meanwhile, the total charter capital of commercial banks was VND612.288 trillion at the end of 2019
|The loosening of regulations would encourage large FIEs to list on the bourse. This would help not only attract domestic capital, but also attract capital from foreign investors meeting difficulties in choosing Vietnam’s stocks to invest in because of the foreign ownership ratio limits in Vietnam’s enterprises.|
This means that the ratio of outstanding loans provided to fund securities investments on total charter capital is near the 5 percent limit.
This shows that the 5 percent limit is a barrier to capital flow from banks to the stock market.
KB Vietnam Securities, commenting on MOF’s proposal to lift the credit limit, said this would allow the stock market to expect a stronger capital flow in the time to come.
However, the securities firm said it is necessary to wait if MOF’s proposal is approved and see how high the new credit limit will be.
Regarding the listing of FIEs, about 10 FIEs have listed shares, most of which have small and medium capitalization value and began listing 10 years ago. The number is very low compared with tens of thousands of FIEs operating in Vietnam.
The loosening of regulations would encourage large FIEs to list on the bourse. This would help not only attract domestic capital, but also attract capital from foreign investors meeting difficulties in choosing Vietnam’s stocks to invest in because of the foreign ownership ratio limits in Vietnam’s enterprises.
The stock market saw another trading session with significant VN Index increase on May 7 after Prime Minister Nguyen Xuan Phuc allowed reopening of non-essential services (except karaoke and discotheque).
The prices of Sabeco and Habeco shares immediately increased by 7 percent and 3.3 percent, respectively, as a response to the good news.
Airline shares have also increased in price after the Ministry of Transport removed the limit on flight frequency and the regulations on passenger spacing, commencing on May 7.
The stock market experienced a sharp decline in Q1. KIS Vietnam has advised investors not to ‘sell in May and go away’.
The Vietnamese stock market regained nearly 100 points after a gloomy March, producing one of the best performances among stock markets around the globe.