Only 1/3 of the operational securities companies would survive after the restructuring process initiated by the State Securities Commission (SSC), which plans to set up stricter requirements on the companies.
According to SSC, a securities company would be forced to stop operation if it is put under the special supervision for six consecutive months, and its accumulative loss is equal to 50 percent of their chartered capital.
Big loss, weak liquidity – the diseases of securities companies
In September 2011, investors tried to run away from SME Securities Company because they thought that the company could not satisfy their remittance and money withdrawal transactions. After that, the Vietnam Securities Depository centre (VSD) released the decision to suspend the custody of the company for one month in late 2011.
At the same time, Trang An Securities Company (TAS) also received a warning from VSD because of the incapability for securities transaction payment. Meanwhile, TAS reportedly owed 7 billion dong to VSD’s payment support fund.
TAS’ general director Le Ho Khoi then admitted that TAS fell into the inability to pay because of the problems in the investors’ money remittance management.
Falling into insolvency has become the common problem of many other securities companies, which have repeatedly reported loss and their stockholder equity has dropped dramatically.
According to Pham Hong Son, a senior official of the State Securities Commission, the stock market showed more optimistic signs in the first quarter of 2012 in comparison with 2011.
However, the competition is getting stiffer. The 10 leading securities companies are holding 60 percent of the market shares. Meanwhile, other small companies, which are running out of money and do not have market share, would have to leave the market.
In the first quarter of 2012, four securities companies stopped providing brokerage services. This means that the companies would stop operation. “The move shows that the companies have realised that they are unfit to the games and they need to look for another way to follow,” Son said.
Also according to Son, in the last month, SSC has invited presidents, general directors and chief accountants of 40 securities companies to SSC’s head office for working sessions.
SSC is likely to make public the names of the securities companies put under the special supervision in some days in order to protect the investors’ interests.
According to Vu Thi Kim Lien, deputy Chair of SSC, 40 out of the 105 operational securities companies are facing liquidity problems and do not meet the financial safety indexes, while 71 companies have reported loss due to the ineffective investments and the stock price decreases.
Four investment fund management companies have been found as having the loss of over 50 percent of the chartered capital. Meanwhile, 23/47 fund management companies have reported loss.
The restructuring process would eliminate 2/3 of companies
SSC has informed that it is compiling the new regulations which would govern the stock market. The Decision No. 27 on the organisation and operation of securities companies relating to risk management would be amended. The commission would also consider the issues relating to the money management, build up the regulations on risk management in accordance with the international practice.
The watchdog agency has predicted that after the restructuring process, only 1/3 of the existing companies would survive.
When asked if there would be a wave of merging securities companies, Son said that the wave may not occur because of the specific characteristics. Unlike commercial banks, which have branches and clients, securities companies running out of money, do not have clients – while the technologies are poor, i.e. there are not enough necessary conditions for the merger.