Many securities companies increase provisions: Be careful of risks of margin lending to large customers
The appearance of more securities companies setting aside provisions for loans needs attention, although the provision is not large compared to the total outstanding debt.
 |
| Profits of many securities companies have improved thanks to a strong increase in profits from investment activities and margin lending. |
The increasingly important “tripod”
Statistics from nearly 80 securities companies show that, on average, for every 100 VND of total revenue achieved in the first half of 2024, there was nearly 28.4 VND of interest from loans and receivables. This figure in the same period of 2023 was 24.2%. The growth of this revenue source alone reached 46%, much higher than the 25% growth rate of total revenue of the securities company group.
According to experts from VIS Rating, strong market sentiment amid low interest rates and a gradual decline in the rate of late payment of principal/interest on newly issued bonds. This boosts trading volume, stock valuations and encourages investors to borrow more on margin.
“Profits improved in the first half of the year thanks to a strong increase in profits from investment activities and margin lending. These are also two factors that 'significantly improved', especially for large securities companies,” the securities industry analysis report emphasized.
The sharp increase in stock trading volume has increased income from this activity. However, in addition to market demand, financial capacity and policies to attract investors to use the service have caused the outstanding loans of many large securities companies to increase sharply, at the same time bringing in more and more "profits".
Techcom Securities Company (TCBS) earned approximately VND1,210 billion in interest from margin loans and sales advances in the first half of 2024, the highest among securities companies. After just one year, income from margin lending increased by 80% over the same period, TCBS took the "throne" of the entire industry, while it was only in the top 3 in the first half of 2023.
The additional capital increase of more than VND 10,000 billion at the end of 2022 through the private offering of 105 million shares at VND 95,000/share to Techcombank has strengthened TCBS's internal strength to help it break through. Outstanding loans by the end of June 2024 have approached USD 1 billion, 1.5 times higher than at the beginning of the year. Pre-tax profit for the first 6 months is 2.8 times higher than the same period last year, leading the securities group.
Many other securities companies also earned hundreds of billions of dong thanks to margin lending, such as VPS (367 billion dong), HSC (271 billion dong). MBS, SSI and VPBankS all earned additional profits of around 260 billion dong. Many smaller securities companies also increased their lending interest by... times, such as VNSC, KAFI, TCI...
Margin lending is increasingly becoming an important “tripod” in many securities companies. According to statistics, at 34/78 securities companies, the ratio of lending interest to total revenue exceeded 30%, 6 more companies than a year ago. In particular, VNSC, TCI, NSI and NH Vietnam all increased the proportion of this business segment.
Beware of signals from increased risk provisioning
It is estimated that in the first half of 2024, securities companies have added nearly VND 45,000 billion, thereby increasing the margin capital for investors to VND 227,656 billion. In addition to TCBS increasing more than VND 8,070 billion in margin capital to the market (leading), compared to the end of 2023, up to 15 companies have added thousands of billions of VND in margin capital to the market, such as HSC (VND 6,400 billion), SSI (VND 5,252 billion), ACBS (VND 2,926 billion), KAFI (VND 2,880 billion), VPBankS (VND 2,120 billion)...
Increased margin lending to large clients could increase risks for securities firms if they have to liquidate collateral during a bear market, as happened in the fourth quarter of 2022. 
- VIS Rating
In addition to the long-standing "big guys", many securities companies that have recently changed ownership and "transformed" with new business strategies also focus on promoting this business activity. Typically, Kafi and VPBankS are securities companies that have started to transform since 2022, both of which have strongly increased the proportion of the above segment in their revenue structure.
The market fluctuated, profits from financial assets decreased sharply, but thanks to the steady growth in revenue from margin lending activities, VPBankS's profit in the first half of the year decreased by 30% compared to the same period, partly "shouldering" the sharp decline due to self-trading.
Securities companies are allocating about 40% of their total capital to assets that are loans to investors. With assets being capital, "money trading" activities often have a low level of risk because the securities company is the one holding the handle. The collateral for the loan is the underlying securities. Securities companies can proactively release the mortgage to recover the money when the maintenance margin ratio is violated.
Along with the development of the market and the securities company itself, the risk management system is increasingly built tightly, responding quickly to fluctuations. Most recently, the activity of selling mortgages and reducing the lending rate for a stock code was suddenly activated at a series of securities companies when the chairman of the board of directors of this enterprise passed away.
However, what is quite worrying about margin lending in the first half of the year is the appearance of risk provisions of tens of billions of VND at some securities companies. Although the ratio between the provision and outstanding loans is only at a very modest level, this is a large amount compared to the revenue from margin lending activities, as well as compared to previous operating history.
The value of loans at VPBankS as of June 30 was approximately VND9,285 billion, but had to set aside VND81 billion in provisions, while it was more than VND50 billion at the end of 2023. At VNDirect, despite achieving very high profit growth in the first half of the year (71.4%) thanks to reduced interest rates and effective proprietary trading, profits were still significantly short due to provisions (VND81.8 billion, while the same period last year was only VND5.4 billion).
VIS Rating assessed that the increase in margin lending to large customers poses a risk of loss for securities companies. As in the case of VNDirect, overdue receivables in the second quarter of 2024 from large customers in the renewable energy sector due to recent delays in principal/interest payments on bonds.
However, VIS Rating expects that asset risks will gradually stabilize in the second half of 2024 when new delinquent bonds are at a low level. In addition, the capital increases announced in the first half of 2024 by many large securities companies and securities companies related to banks will help strengthen risk buffers.
Source: https://baodautu.vn/nhieu-cong-ty-chung-khoan-tang-trich-lap-du-phong-can-trong-rui-ro-cho-vay-margin-khach-hang-lon-d222670.html
Comment (0)