Securities companies' growth potential driven by bonds and margin lending

Following a robust performance in 2024, where many firms reported significant profit increases, the landscape appears ripe for further expansion, in spite of the challenges posed by a competitive environment.

In 2024, the financial results of securities companies reflected a strong recovery, underscoring a broader positive sentiment in the market.

A total of six firms recorded profits exceeding 1 trillion VND (39.3 million USD), with Techcom Securities Company (TCSB) leading the charge with an impressive profit after tax of nearly 3.85 trillion VND, up 60% year-on-year.

TCBS posted a strong growth of 60% on-year in profit after tax in 2024. (Photo tcbs.com.vn)

Other notable performers included SSI Securities Corporation, VPS Securities, VNDirect Securities Corporation, Ho Chi Minh City Securities Company and Saigon - Hanoi Securities (SHS), all of which benefitted from favourable market conditions in the first half of the year.

The year began with optimism as the market buoyed investor confidence, leading to increased trading volumes and heightened activity in the securities sector.

However, this positive momentum slowed considerably in the latter half of 2024, resulting in a mixed performance across the industry.

Despite the downturn, many companies still managed to achieve double-digit profit growth, demonstrating their resilience amid changing market conditions.

Support from banking institutions has been a crucial factor for several securities firms, particularly for those like SHS, HDBank Securities and Tien Phong Securities, which benefitted from strong backing.

Additionally, newly restructured companies such as LPBank Securities JSC (LPBS) and UP Securities SJC (UPSC) also reported significant profit growth, highlighting the effectiveness of strategic repositioning in a competitive market.

Margin lending and proprietary trading have consistently been the main contributors to revenue for securities companies.

These activities allow firms to leverage their capital, providing clients with the ability to invest more than their immediate cash holdings.

However, the brokerage income segment has faced challenges due to increased competition and a decrease in trading volumes in the second half of the year.

This has necessitated a reevaluation of business strategies for many firms as they navigate an increasingly saturated market.

In 2025, analysts from SSI expect revenue growth for securities companies to be somewhat limited. Despite this, improvements in profitability are anticipated, primarily driven by operational cost reductions.

The brokerage fees are projected to remain relatively stable, with slight increases in trading volumes potentially offsetting some of the competitive pressures that have emerged in recent times.

Enhanced investor confidence could further propel the performance of securities companies, allowing them to capitalise on new opportunities.

According to VIS Rating, investor sentiment in 2025 will benefit from strong economic growth and improved business health, alongside enhanced market infrastructure attracting investors to local stock and bond markets.

Companies linked to private banks are projected to lead profit growth at around 25% this year, using their parent banks' customer networks and capital.

With rising bond issuances, income from bonds and advisory fees is expected to grow, bolstered by strong customer relationships.

However, foreign companies may face limited profit growth due to a lack of economies of scale in brokerage and margin lending.

High-risk asset holdings, mainly corporate bonds, will increase, particularly for private bank affiliates, which are well-positioned to lend to large businesses and enhance bond distribution.

Credit losses will remain stable due to lower overdue payments, supported by strong business conditions.

While margin lending risks are concentrated among a few large clients, overall asset risk is well-managed through collateral.

Private bank affiliates will likely increase capital more than their peers, while foreign firms may rely on short-term bank borrowing to expand margin lending, maintaining limited refinancing risks.