Many securities companies increase provisions for bad debts: Caution advised regarding the risks of margin lending to large clients.
The increasing number of securities companies setting aside provisions for loans should be noted, even though the amount set aside is not large compared to the total outstanding debt.
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| Profits at many securities companies improved thanks to a sharp increase in interest income from investment and margin lending activities. |
The "three-legged stool" is becoming increasingly important.
Statistics from nearly 80 securities companies show that, on average, for every 100 dong of total revenue achieved in the first half of 2024, nearly 28.4 dong came from interest income from loans and receivables. This figure was 24.2% in the same period of 2023. The growth in this revenue source alone reached 46%, significantly higher than the 25% growth in total revenue of the securities companies group.
According to experts at VIS Rating, a credit rating agency, strong market sentiment is driven by low interest rates and a gradual decrease in the rate of default on principal and interest payments on newly arising bonds. This boosts trading volume, stock valuations, and encourages investors to borrow more on margin.
"Profitability improved in the first half of the year thanks to a strong increase in profits from investment and margin lending activities. These were also two factors that 'significantly improved,' especially for large securities firms," the securities industry analysis report emphasized.
The surge in stock trading volume has boosted income from this activity. However, in addition to market demand, financial capacity and policies to attract investors to use the services have led to a sharp increase in loan balances for many large securities companies, resulting in increasingly higher profits.
Techcombank Securities (TCBS) earned approximately VND 1,210 billion in profit from margin lending and advance payments in the first half of 2024, the highest among securities companies. In just one year, income from margin lending increased by 80% year-on-year, giving TCBS the industry leader, whereas it was only in the top 3 in the first half of 2023.
The capital increase of over VND 10 trillion at the end of 2022 through the private placement of 105 million shares at VND 95,000 per share to Techcombank strengthened TCBS's internal capabilities, enabling its breakthrough. Loan outstanding balances by the end of June 2024 were close to USD 1 billion, a 1.5-fold increase compared to the beginning of the year. Pre-tax profit for the first six months was 2.8 times higher than the same period last year, leading the securities sector.
Many other securities companies also earned hundreds of billions of dong from margin lending, such as VPS (367 billion dong) and 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 profits by several times, such as VNSC, KAFI, and TCI…
Margin lending is increasingly becoming a crucial pillar for many securities companies. According to statistics, in 34 out of 78 securities companies, the proportion of interest income from loans to total revenue exceeds 30%, six more than a year ago. Among them, VNSC, TCI, NSI, and Vietnam Bank all significantly increased the proportion of this business segment.
Be cautious of signals from increased risk provisions.
It is estimated that in the first half of 2024, securities companies added nearly 45,000 billion VND, thereby raising the margin lending capital for investors to 227,656 billion VND. Besides TCBS, which increased its margin lending capital by over 8,070 billion VND (leading the way), compared to the end of 2023, 15 companies added thousands of billions of VND in margin lending capital to the market, such as HSC (6,400 billion VND), SSI (5,252 billion VND), ACBS (2,926 billion VND), KAFI (2,880 billion VND), VPBankS (2,120 billion VND), etc.
Increased margin lending to large clients can increase the risk for securities firms if they have to sell off collateral during a stock market downturn, as happened in the fourth quarter of 2022. 
- VIS Rating
Besides the long-established "giants," many newly owned and transformed securities companies are also focusing on boosting this business activity. For example, Kafi and VPBankS, securities companies that began their transformation in 2022, have significantly increased the proportion of this segment in their revenue structure.
Despite market volatility and a sharp decline in profits from financial assets, VPBank's profits in the first half of the year, which fell by 30% compared to the same period last year, were partially offset by the sharp decline caused by proprietary trading.
Securities companies allocate approximately 40% of their total capital to assets in the form of loans to investors. Using capital as collateral, this "money trading" activity generally carries low risk because the securities company holds the upper hand. The collateral for the loan is the underlying securities. The securities company can proactively foreclose to recover the funds if the maintained margin ratio is violated.
Along with the development of the market and the securities companies themselves, risk management systems are becoming increasingly robust and responsive to fluctuations. Most recently, forced selling and reduction of loan ratios for a particular security were unexpectedly triggered at a number of securities companies following the death of the company's chairman of the board.
However, a rather worrying aspect of margin lending in the first half of the year is the appearance of risk provisions amounting to tens of billions of VND at some securities companies. Although the ratio between the provision amount and the outstanding loan balance is very modest, this is a large amount compared to the revenue generated from margin lending activities, as well as compared to previous operating history.
The value of loans at VPBankS as of June 30th was approximately VND 9,285 billion, but a provision of VND 81 billion had to be set aside, compared to over VND 50 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 still fell significantly due to provisions of VND 81.8 billion (compared to only VND 5.4 billion in the same period last year).
VIS Rating assesses that the increase in margin lending to large clients poses a risk of loss for securities companies. As in the case of VNDirect, overdue receivables in Q2/2024 from large clients in the renewable energy sector were due to recent delays in principal/interest payments on bonds.
However, VIS Rating expects asset risk to gradually stabilize in the second half of 2024 as new defaulted bond issues remain low. In addition, capital increases announced in the first half of 2024 by many large securities companies and securities companies affiliated with 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
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