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Embattled securities firms find no suitors

Update: July, 18/2016 - 10:21
For Sacombank Securities Company (SBS), merging with another brokerage is a fait accompli: its accumulated losses exceed its capital. — Photo 

HÀ NỘI — For Sacombank Securities Company (SBS), merging with another brokerage is a fait accompli: its accumulated losses exceed its capital.

Regulations stipulate that brokerages will be suspended if their accumulated losses exceed 50 per cent of their chartered capital.

SBS has a capital of VNĐ1.27 trillion ($59 million), relatively large compared to other brokerages. But it had accumulated losses of some VNĐ1.3 trillion ($60.5 million) by the end of last year.

The main criterion for selection of a partner is funds, the company said. After the merger, it might think of issuing more shares to increase its capital.

This year the HCM City-based securities company expects to generate a profit of VNĐ10 billion ($465,116).

Recently the Đà Nẵng Securities Joint Stock Company (DNSC) also announced plans for a merger, but admitted it would not be easy.

SBS and DNSC are only two of several securities firms that have merger plans to comprehensively restructure, meeting the central bank’s requirements and, more importantly, wipe off their accumulated loss.

A few of them have achieved their plans.

The Asia-Pacific Securities Company took four years to complete its merger with the Golden Lotus Joint Stock Company, but after two years they had to separate due to obstacles created by regulations.

What are the main difficulties securities companies face in pulling of a merger?

It is their poor financial situation and accumulated losses, which makes it hard for them to find suitors.

For instance, Việt Nam Industrial & Commercial Securities Company (VIG) has planned to restructure and merge with one or some peers to “cut” accumulated loss. However, it seems to fail to realise this plan because of its current accumulated loss estimated VNĐ100 billion and a limited financial capability.

Major securities companies are just not interested in weak companies like VIG, while VIG as well as other weak companies’ situation would not improve if they merge with a company in similar health.

Analysts said in the short term authorities should some measures to help small securities companies reduce their accumulated loss, one of which is to allow them to reduce their chartered capital.

Analysts said a raft of mergers and acquisitions are expected in the securities industry this year and in the coming years to ensure that the surviving companies are able to meet requirements which are becoming more and more stringent.

This would enable the government to allow the introduction of new products and securities to take part in the derivatives market due to come into being this year.

It is estimated that after being restructured the number of securities companies will be cut by half to 20-25, or equivalent to half the number in neighbouring countries.

But the Government is reportedly willing to accept this modest figure to ensure the market functions efficiently.

Gold’s volatility after UK exit

Global gold prices soared by 8 per cent to their highest in more than two years on June 25 after Britain delivered a shock vote to leave the European Union, sending investors scurrying for protection in bullion and other assets perceived as lower risk.

Though this event took place in remote Britain, it has strongly affected the Vietnamese gold market, with prices rocketing in line with the global trend yet attracting a lot of money.

On July 6 Sài Gòn Jewelry Holdings Co. (SJC) gold was traded at VNĐ37.30 million ($1,672) and VNĐ38 million (buying and selling) per tael, or 1.2 ounces, VNĐ1.1 million up from the previous day. Sometime during the day it reached nearly VNĐ40 million.

Meanwhile, in Asian markets the price was at $1,360 per ounce, $20 higher than the previous day.

Vietnamese gold traders attributed the price hike to the unstable situation following Britain’s exit, which made many people turn to the precious metal, considering it a haven.

There was a scramble to buy though domestic prices were VNĐ3 million higher than global prices. 

According to reports from major gold traders like SJC, DOJI and Bảo Tín Minh Châu, each sold 1,000-2,000 taels a day on July 6 and 7, or around VNĐ200 billion worth.

But the rise was short-lived and prices dropped sharply back within a few days.

After the initial shock, the global financial market soon stabilised, bringing about stability in domestic gold prices.

In Việt Nam, prices fell by VNĐ3 million to over VNĐ 36 million.

On June 26 global gold prices went up by over US$70 per ounce, while in Việt Nam they went up by nearly VNĐ6 million per tael.

Experts said many people wanted to invest in gold to make profits, but did not know how, and gold traders took advantage of this to increase prices to sky-high levels.

They predicted bullion prices to rise again this year though not to the same extent again.

So people still could make reasonable profits if they invest in the metal for the medium or long term since instability due to Britain’s exit would continue in the British and global financial markets.

But caution is the watchword as always when investing in gold, they said.

Bank deposit interest rates rise -- again

On July 7 Sacombank decided to raise deposit interest rates by 0.05-1 per cent depending on the term. The lender’s highest rate of 6.8 per cent applies to 12-month deposits.

VPBank earlier adjusted deposit interest rates twice, and its highest rate is 7.1 per cent for 36 months.

The banks said many people recently withdrew their deposits to buy gold in the hope of making profits since prices were raising sharply due to the UK’s EU exit, and so they had to increase deposit interest rates to arrest the trend.

But the truth is banks started hiking deposit interest rates much earlier.

According to the National Financial Supervisory Committee, deposit interest rates soared by 0.7 per cent in the first half of this year and lending interest rates by 0.2-0.5 per cent.

But the interest rate hikes have surprised some analysts, who point out that the Government has urged the banking sector to reduce interest rates to support the economy.

Besides, the banking sector had plenty of liquidity. From late 2015 deposits have increased by 9 per cent, and credit by only 6.8 per cent.

The inter-bank interest rate and the interest rates on government bonds have both decreased.

The central bank has also bought a huge amount of foreign currency, thus increasing the đồng circulation.

Some analysts attribute the hikes to the central bank reducing the maximum ratio of short-term funds that can used for medium- and long-term loans from 60 per cent to 40 per cent.

The 60 per cent ratio will remain unchanged this year and be cut to 50 per cent next year and to 40 per cent in 2018.

Because of this and the imminent rise in demand for credit in the upcoming peak business season, banks have had to raise more deposits.

However, the biggest reason is believed to be possibility that inflation would rise later this year, putting upward pressure on government bond interest rates.

The consumer price index (CPI) was up 2.35 percent as of June, with the prices in the first half up 1.72 percent compared to a year earlier.

The January-June inflation was high because of hikes in healthcare and education costs, a hike in minimum wages and rising global commodity prices.

The commodity prices are expected to rise further at year-end. With the prices of healthcare and education to go up further and annual credit growth topping 20 percent, the CPI could rise by 5-5.5 percent this year.

Apart from the planned increase in health care and education services, the effects of adverse weather conditions and climate change are also expected to cause inflationary pressures.

An official from the Ministry of Finance’s Price Management Department said prices in the coming months would be affected by the global prices of oil, natural gas and other basic commodities, domestic weather conditions and environmental issues.

Banks’ deposit interest rate hikes have raised fears about concomitant lending rate hikes, which would deal a big blow to local enterprises that are already struggling to compete with their foreign rivals who can borrow at much lower rates from foreign banks.

Analysts said that to reduce the interest rates the most proper and important solution now would be to quickly settle bad debts worth thousands of billions of đồng that are still to be recovered and pumped back into the banking sector.

The central bank should also allow banks to accept deposits and lend in foreign currencies so that companies could borrow at low rates.

The Government also needs to take stronger measures to ease its budget deficit, which is one of the reasons for the rising interest rates, experts said. — VNS

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