Vietnam shares dip on bank loan concerns

HANOI, March 19 (Reuters) - Vietnam's stock market dropped to a 16-month low on Wednesday as domestic investors, including banks, stepped up sales to limit losses.

The Ho Chi Minh Stock Exchange .VNI closed down 2.52 percent at 573.45 points, its fourth fall in a row and the lowest close since Nov. 16, 2006 when the VN Index ended at 559.83 points.

The over-the-counter Hanoi Securities Trading Center .HASTCI rose 1 percent to end at 197.78 points.

Volume more than doubled in Ho Chi Minh City to 17.34 million shares from 7.7 million shares on Tuesday as foreign investors extended their purchases in a market where the index has dropped 38 percent this year.

"Banks are forced to sell mortgaged shares to recover funds and investors are also under pressure to sell to repay their bank loans," a broker in Ho Chi Minh City said.

A central bank ruling on limiting loans to stock investors has prompted banks to chase their debts, brokers in Ho Chi Minh City and Hanoi said [ID:nHAN85471].

Banks often get shareholder approval on their capital raising plans in the first quarter before they can start issuing shares.

Liquidity issues also scared retail investors who dominate trading in the tiny $16 billion market after a series of central bank measures to fight inflation, including 20.3 trillion dong of compulsory bills issued on Monday, soaked up funds.

The government has ordered the State Capital Investment Corp, its investment arm, to buy shares to stabilise the market but brokers said the measure appeared to be only a little effective.

It said it was buying but declined to disclose what, denting investor confidence.

"The government should relax on banks and get insurance companies to buy compulsory bonds instead as they have huge, long-term funds around," the Ho Chi Minh City-based broker said.

Shares in Sacombank STB.HM ended 4.76 percent lower at 42,000 dong after the bank said it expected gross profit growth to slow to 38 percent this year to 2 trillion dong ($125 million) after a 167 percent rise last year [ID:nHAN206889]. (Reporting by Ho Binh Minh; Editing by Michael Battye)