Total lending of the banking sector for securities trading has reached VND10 trillion (US$444.4 million), according to State Bank of Viet Nam (SBV) governor Le Minh Hung.

That was down 40 per cent compared to the same period last year, Hung told a National Assembly session last week, adding that bank’s lending for the securities sector was being tightly controlled to make sure bad debts stayed low.

Under existing regulations, a financial institution can only borrow from commercial banks to invest in the securities sector if the firm’s bad debt to charter capital ratio is below 3 per cent, while the total lending for securities firms that a commercial bank can make is maximum 5 per cent of the bank’s charter capital.

As the total charter capital of the entire banking system as of the end of August was reported by the SBV at VND505 trillion, the maximum amount of money that commercial banks can lend for the securities sector was estimated at VND25 trillion.

As the total lending of banks to brokerage firms was reported at VND10 trillion, there are still opportunities for financial firms to borrow another VND15 trillion to carry out their business activities in the securities sector, Hung said.

Brokerage firms reduce dependence on bank loans by bond issuance

Total margin lending of securities firms to their clients for securities trading is estimated at VND32 trillion by the top 20 securities companies as of September 2017.

The figure was an increase of 35 per cent from the beginning of the year as investors had raised their demand for margin lending. This is also the source of income for securities firms as the annual interest rates that those firms offered to customers ranged from 13 per cent to 14 per cent.

To increase margin lending, brokerage firms have planned to issue corporate bonds to increase their capital in addition to loans from commercial banks as corporate bonds often have longer terms than bank loans and offer financial stability.

Among those companies, Viet Capital Securities Co (VCSC) on October 23 announced it would issue VND500 billion worth of corporate bonds to raise capital and restructure its debts.

The company bonds have a maturity of 24 months and the annual yield rate is calculated by the average middle-term saving rates of the Bank for Investment and Development of Viet Nam (BIDV) and Vietinbank plus 4.5 per cent.

Since the beginning of the year, VSCS had raised total VND1 trillion from three bond issuances. As of the end of September, the company had lent total VND3.2 trillion to clients for securities trading.

Also in late October, HCM City Securities Corp (HSC) announced its plan to raise VND800 billion by issuing one-year bonds with annual yield rates of 10 per cent. The issuance will be completed by the end of December and the company had total margin lending of VND3.54 trillion.

The top brokerage firm – Saigon Securities Inc (SSI) – has raised total VND600 billion from bond issuance since the beginning of 2017. At the end of September, SSI had the highest margin lending in the market, which reached VND4.73 trillion. — VNS