Alarm bell about to ring on many securities companies

What will happen when the Circular No 226 on financial security indicators officially takes effect on April 1? Analysts believe that many securities companies will be added to the “black list” for special control, while others will have to stop operations.

Securities companies pushed against the wall

On March 31, Vincom Securities Company (VIX) announced that Vincom Corporation (VIC) had withdrawn all of its capital from the subsidiary. Prior to that, VIC announced a plan to withdraw capital from VIX after realizing that the subsidiary could not bring the desired profits. Meanwhile, many securities companies reported losses for 2010. This is a snapshot of the difficulties that securities companies are facing.

Tam Nhin Securities Company (HRS) has incurred losses for four consecutive years with an accumulative loss of 36 billion dong. It has the total capital of 45 billion dong. Other companies have been incurring loss for three consecutive years, such as An Nam, Thanh Cong, Navibank Securities, Mien Nam and Vina Securities. The number of unprofitable securities companies continues to rise as more and more statistics are reported. Even veteran companies such as Bao Viet and Kim Long have also been added to the “warning list” because they have incurred loss for two consecutive years.

Most of the securities companies which have incurred heavy losses for the last consecutive years are the ones which have low stockholder equity and have to increase capital to hold out. However, analysts have pointed out that it is not easy for the companies to find partners now. There are 105 operational securities companies, a number that is too high if noting that Vietnam remains a small market.

A representative of Kim Long Securities Company said that the opportunities for securities companies to surf on investments are being exhausted, while brokerage can no longer bring profit because the earnings are not big enough to cover expenses and risks. Especially, the opportunities have been narrowed due to tightened monetary policies.

The director of a big securities company in Hanoi said many companies are still trying to exist in the hope that the market will prosper and bring more opportunities. Especially, they expect to see opportunities to sell stakes to foreign partners when Vietnam completely opens the market under WTO commitments. However, analysts have warned that foreign investors will not pay much money if they only need operation licenses.

What will happen when Circular No 226 takes effect?

The circular stipulates financial security indicators and treatment to securities trading institutions that cannot meet the requirements in financial security indicators.

If the usable capital ratio –the percentage of the value of usable capital on the total risk is lower than 180 percent, securities companies will have to report twice a month. If the ratio is less than 150 percent, they will have to report once a week, and if the ratio is less than 120 percent, they will have to report daily.

Securities companies will be put under the control of management agencies if the usable capital ratio hovers around 120-150 percent in all reports for three consecutive months. In this case, they will have to put forward the measures to deal with the problems. They will either have to sell risky assets, cut down operational expenses, cut down labor forces, shut down branches or narrow operations, stop paying dividends, or they wi;; not be able to raise capital.

Especially, if the ratio is less than 120 percent, or securities companies cannot get results with the above said measures, they will be put under the special control. The companies will have to stop operation if they have accumulative losses exceeding 50 percent of the companies’ chartered capital and cannot escape their troubles after six months. – Vietnamnet

Tags: vietnam stock, Vietnam stock market, VNindex