Foreign competitor pressure on securities companies

Saigon Investment
(Saigon Investment) - Increase of vast amounts of cash flow in the stock market has helped the VN Index go past the 1,000-point mark, as well as create conditions for securities companies to reverse the current poor situation after the first quarter showed negative results. 

Illustrative photo.

Illustrative photo.

However, pressure is mounting on securities companies and difficult problems still remain unresolved.

Spike in revenue

Although many securities companies have reported losses in the first months of the year due to the detrimental impact of the Covid-19 pandemic, revenue of these companies has suddenly increased sharply in the third quarter. This has helped securities companies to reverse the current poor situation from losses in the first quarter to profit in last nine months. Financial statements of fifty of the largest securities companies in the market showed that operating revenue and profit after tax in last nine months increased by 38.3% since 2019, reaching VND 23,682 bn, and 41.2% since 2019, reaching VND 6,940 bn, respectively.

Saigon Securities Inc (SSI) continues to lead in maximum revenue in the market, with total revenue of last nine months of 2020 reaching VND 3,192 bn, up nearly 37%. Standing in next position is VPBank Securities Company (VPBS) with VND 2,669 bn, up 36.8%. Techcombank Securities Company (TCBS) leads the way in terms of revenue growth, with last nine month growth of 123.5% reaching VND 2,490 bn. Securities companies with revenue of more than VND 1,000 bn in last nine months also include Ho Chi Minh Securities Company (HCM) with VND 1,400 bn; VNDirect Securities (VND) with VND 1,378 bn; Saigon Hanoi Securities Company (SHS) with VND 1,121 bn; Ban Viet Securities Company (VCI) with VND 1,066 bn; and Mirae Asset Securities Company (MAS) with VND 1,005 bn.

A special feature of securities companies is that the larger the revenue, the higher the profit. Therefore, the above securities companies are also in the top profitability bracket in the market. Specifically, TCBS led in last nine months profit with VND 1,707 bn, 2.5 times higher than in the same period in 2019. This was followed by SSI and VNDirect Securities with VND 875 bn, up 27%, and VND 441 bn, up 90%, respectively. After nine months, the top ten securities companies reported the biggest profit in the market, where VCI had VND 419 bn; SHS with VND 406 bn; HCM with VND 393 bn; VPBS with VND 363 bn; MAS with VND 353 bn; VIX Securities (VIX) with VND196 bn; and MB Securities (MBS) with VND 171 bn.

Strong growth wave

According to analysts, there are two factors that explain the reversal of business results of securities companies. The first is the increase in share price on the stock market, which helped the proprietary portfolio of securities companies to become profitable again after a long period of losses. However, the second and most important factor and the main contributor to revenue and profit of securities companies was the massive amount of liquidity in the market. In the third quarter, market liquidity surged over many sessions with total trading value on all three exchanges reaching at about VND 10,000 bn. This is a dream figure for securities companies because only a few years ago, one leader of a securities company shared that only the trading value of the whole market per session had ever reached VND 4,000 bn to VND 5,000 bn.

The situation became even more positive for the securities companies in the last months of the year when market liquidity continued to explode. The trading sessions accounting for VND 10,000 bn are not of three exchanges combined, but the HOSE number alone. Even in the session on 15 December, the trading value on all three exchanges exceeded VND 15,000 bn. Positive business results in September, plus large amounts of liquidity stimulated a strong cash flow to the securities company groups in the fourth quarter of the year.

Specifically, from the beginning of the second quarter up until now, SSI has increased from below VND 10,000 per share to over VND 25,000 per share, up 166%; HCM from VND 10,000 per share to more than VND 28,000 per share, up 180%; VNDirect Securities from VND 10,000 per share to VND 23,000 per share, up 130%; VCI from VND 14,000 per share to VND 45,000 per share, up 220%; SHS from VND 6,000 per share to VND 16,000 per share, up 166%; and VIX from VND 4,500 per share to about VND 20,000 per share, up 400%.

Foreign competition

This unexpected bonanza has put an increased pressure on securities companies, especially with the emergence of more and more securities companies with foreign capital. The appearance of securities companies with investment capital from South Korea, such as KIS Vietnam Securities (KIS), KB Vietnam Securities (KBSV) or MAS have created much more pressure on existing domestic securities companies.

According to analysts, the main competitive advantage of foreign securities companies comes from two factors, namely, better experience in the international market, and low-cost capital mobilization. One leader of a domestic securities company shared that international experience helps foreign securities companies with more access and a faster reach of new products. Besides this, financial potential is also a factor that helps foreign securities companies offer low-cost and attractive products and services to attract customers.

Capital is not the only factor that helps securities companies increase market share, but it lies in meeting the best operating criteria. Currently, the minimum capital level of VND 1,000 bn for securities companies to cover for basic activities, margin lending and so forth, is the ability to adapt to new product business conditions, such as derivative securities or Guaranteed Warranties (CW). This is considered to be an important factor urging securities companies to increase capital amount to meet operational standards. In this race, the advantage still belongs to foreign securities companies. Currently, the top ten securities companies with the largest margin loans comes from South Korea. For example, MAS has just set a new record for margin balance on the stock market with VND 9,670 bn, far ahead of domestic giants like SSI, HCM or VNDirect Securities.

However, the above factors are not enough for foreign securities companies to win in a competitive market. On the contrary, domestic securities companies are not inferior in strength to foreign competitors, but even having more advantages thanks to understanding of market sentiment and holding large number of market shares. In the last three years, the brokerage market shares of foreign-invested securities companies on HOSE increased nearly three times, from 4.6% to 12%. This figure is still quite low compared to domestic securities companies such as SSI with 11.82%; HCM with 8.43%; VPBS with 7.65%; and VND with 7.12%. According to Mr. Nguyen Duy Hung, Chairman of the Board of Directors of SSI, in the long term the preferential strategy is not to take a sustainable step because of the financial gap between domestic and foreign securities companies, as the biggest competitive advantage will still be service, quality and prestige.

Kim Giang

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