Brokerages set for tighter debt ratios

Brokerages set for tighter debt ratios

Capital inflows into the stock market are likely to decline substantially if a draft circular being prepared to replace Ministry of Finance Decision No 27/2007/QD-BTC is approved.

The draft regulation on the organisation and operation of securities companies will limit these companies from carrying a debt load in excess of three times their equity capital. Current regulations allow them to borrow up to six times their equity.

Revising the debt-to-equity ratio down to three times might not have a serious impact, said analysts from the publication Dau tu Chung khoan (Securities Investment), since the top 10 securities companies operating on the HCM City Stock Exchange all already maintained low debt ratios.

First-quarter financial statements from Vietcombank Securities Co and VNDirect Securities Co even showed that neither firm needed to borrow to lend to clients for margin trading or other purposes.

Analysts therefore said that problems could arise instead from the proposed regulation that securities firms must borrow from credit institutions or by issuing bonds. Currently, bank loans represent a very small proportion of the debt structure of many securities firms.

Thang Long Securities Co (TLS), for instance, reported no outstanding loans from banks. Of the company's total debt last year of VND1.8 trillion (US$86 million), about VND992 billion ($47.2 million) was borrowed from other enterprises and VND219.6 billion ($10.5 million), from individuals.

The draft circular aims to tighten the operations of securities companies who have recently shifted their strategies from making their own investments on the stock market to developing brokerage services and financial support for investors.

In the past, the securities affiliate of the Viet Nam Prosperity Bank (VP Bank) was fined for violating the debt ratio, with a debt ratio in excess of 7.5 times its equity.

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