VietNamNet Bridge – A question has been raised about why securities companies under commercial banks are rushing to increase their chartered capital at this moment.

On September 11, SBS belonging to Sacombank announced it would increase its capital from VND300bil ($18.75mil) to VND1,100bil ($68.75mil).

Several days before, on September 6, ACBS announced its new chartered capital at VND500bil ($31.25mil), double the previous level. On August 17, DAS under EAB was raised from VND135bil ($8.43mil) to VND500bil ($31.25mil). Meanwhile, ORS under Orient Bank has also decided to double its chartered capital to VND120bil ($7.5mil) just after three quarters of operation.  

After raising its chartered capital to VND330bil ($20.62mil) in April 2007 from VND50bil ($3.12mil), ABS under An Binh Bank still cherishes the plan of further raising its capital to VND1,200bil ($75mil) by the end of this year. ABS said that the best solution to improve competitiveness was to increase chartered capital: this can help upgrade financial capability. Now ABS has headquarters in Hanoi, a branch in HCM City and a transaction point in Can Tho for receiving orders from investors. ABS plans to gain the return on equity of 20-30% this year.

Dang Van Thanh, Chairman of Sacombank and SBS, said that Sacombank always paid appropriate attention to the expanding of business scale and upgrading the financial capability of the bank’s securities company. In the long term, SBS will be developed into a leading securities company in Vietnam.

SBS has signed a contract on buying software solution of DST International, one of the leading software solution providers in the region. With the solution, SBS will be able to connect directly with the HCM City Stock Exchange and Hanoi Securities Trading Centre.

However, doubts have been raised over the massive capital increases of banks’ securities companies recently. Some say that parent banks are trying to pour capital into subsidiary securities companies by increasing capital so that the companies can continue providing repo services (a contract in which the seller of securities agrees to buy them back at a specified time and price).

The central bank has tried to limit the loaning for securities investments by requiring commercial banks to curb these loans at below 3% of total outstanding loans. The decision has forced banks to stop loaning for securities investments recently. However, several banks have announced they will resume loaning for securities investments through securities companies and several parent banks will maintain the repo services for investors.

For example, SeABbank in Hanoi has cooperated with its subsidiary company SeABS to provide loans to securities investors. SBS also still provides repo services to investors. Meanwhile, most securities companies had to stop repos three months ago as parent banks stopped pouring in capital.

However, Mr Thanh has denied the doubts, saying that ‘all roads come to Rome’, implying that there are many solutions to reach that goal instead of increasing chartered capital. He said that Sacombank was still loaning for securities investments until these loans hit the 3% threshold.

Anyway, experts have said that it is worrying to see securities companies increase capital too quickly. They say that securities companies do not have to expand business scale, they should focus on technologies and quality of services.

(Source: DTCK)