The directive divides banks into four different groups, with "healthy banks" allocated a maximum credit growth for the year of 17 per cent. Loans to "unencouraged sectors", including securities and real estate investors, could o­nly increase by 16 per cent.

Yet, since the directive was issued o­n February 13, benchmark indices o­n the HCM City Stock Exchange and Ha Noi Stock Exchange have risen by nearly 20 per cent each.

"Although Directive No 01 did not meet the expectations of the market, it reflected a major effort by the central bank," said a State Securities Commission official who asked to remain anonymous.

"Directive No 01 is an effective tool for restructuring credit institutions, boosting the operation of already strong banks," the official said. "With monetary policies being required to serve the primary target of curbing inflation, and with credit primarily intended to promote the growth of agriculture, exports and support industries, credit growth of 16 per cent for the ‘unencouraged sectors' is significant support."

The primary factor affecting the flows of capital into the stock market might not be the credit squeeze but the fact that investors and securities companies were not using their own financial leverage due to concerns over market risks and high interest rates.

"In this case, o­nly an improved economic picture can help increase bank liquidity, lower interest rates and free up lending," the official said.

But Bao Viet Securities Co said that Directive No 1 has adversely affected investor psychology.

"The stock market will not be lifted by direct infusions of capital to improve liquidity," said the Vietnam Chamber of Commerce and Industry in a statment, adding that stronger measures were needed to unfreeze capital flows into the stock market, including shorter transaction settlement periods.

Only a few major brokerages were offering margin lending, and they were doing so o­nly o­n a limited basis, said Saigon Securities Inc deputy director Nguyen Hong Nam. "At our company, the total value of margin trading in the recent rally was o­nly moderate," Nam said.

Some cash has shifted from other investment channels such as gold and foreign currency, which have proven to be unprofitable, said Kim Eng Securities Co analyst Phan Dung Khanh. "However, this is an unstable source of capital."

"The market has to improve its intrinsic factors to be able to attract investment," said State Securities Commission chairman Vu Bang at a recent commission meeting.