Low deposit interest rates have led people with idle money to seek higher-yielding investment channels. Low interest rates have also encouraged securities companies to increase margin lending to gain market share after the capital race phase…
Stimulating trading demand
Since the beginning of 2024, a wave of securities companies racing to provide margin loans (trading on margin, borrowing money from securities companies to buy stocks) at a low interest rate has been quite common. The margin lending rate is only from 6%-8% per year, nearly half of last year’s rate of 13%-15% per year.
DNSE Securities Company said it is providing margin loans at an interest rate starting from 5.99% for the Rocket X product, with a 6-month duration. With the Rocket 10-day loan package, investors will be exempt from interest for 10 days, with an interest rate of about 15% per year after the preferential period.
Yuanta Vietnam Securities Company has launched a 0% interest rate program when investors open a margin account from February 19th to March 19th. The 0% interest rate applies to the first 100 million VND of outstanding balance. Many other margin packages have interest rates of 8%-9% per year with the criteria of borrowing a large amount and reducing interest rates…
According to reporters of Bao Nguoi Lao Dong, a series of securities companies are racing to offer low-interest margin loans to encourage investors to open accounts and use financial leverage. Mirae Asset Vietnam Securities Company announced the launch of a margin loan package with preferential interest rates to create favorable conditions for investors to trade more. Specifically, when customers open new accounts from now until March 31st, the preferential margin rate is 7.99% per year with a maximum outstanding balance of 500 million VND per account.
Brokers of SSI Securities Company said the company is implementing a promotion program, reimbursing margin interest up to 50 million VND; a margin loan with an interest rate of 9% per year applies to customer accounts with large outstanding balances and a T+7 margin policy (interest-free for the first 7 days).
“With a maximum reimbursement of 50 million VND in interest throughout 2024, the average interest rate is about 10.8% per year. With a 7-day interest-free program, if using continuous margin for the first 25 days, the interest rate will be much lower than the 13.5%-15% per year of other companies,” the SSI broker commented.
Securities companies are racing to offer low-interest margin loans to attract investors. Photo: HOANG TRIEU
Along with low margin interest rates, many securities companies are also implementing “zero fee” policies to encourage investors to trade.
In the period when VN-Index increased from around 1,100 points to above 1,200 points from November 2023 until now, the market has attracted idle money from outside to return. In the past week, from February 19th to 23rd, the total trading value on all three exchanges HoSE, HNX, and Upcom increased sharply by 29% compared to the previous week, reaching 26,000 billion VND per session. In the final session on February 23rd, the trading value on HoSE reached nearly 32,000 billion VND, with a trading volume of 1.32 billion shares – the highest since August 2023 so far.
According to the latest data from the Vietnam Securities Depository and Clearing Corporation, as of the end of January 2024, the number of domestic individual investor accounts reached over 7.35 million, an increase of more than 125,000 accounts compared to the end of last year.
In the 2024 Strategic Report, SSI believes that the record low interest rates will be a major driver of growth, especially for individual retail investors. Deposits in banks are still continuously increasing due to limited other investment channels. This capital flow may return to the stock market in different phases of 2024.
Increasing “hot” market share competition
Statistics from Ho Chi Minh City Stock Exchange (HoSE) to the end of the fourth quarter of 2023 showed that the top 10 brokerage companies with the largest market share are VPS, SSI, TCBS, VNDS, HSC, MBS, MAS (Mirae Asset), Vietcap, FPTS, and KIS.
Mr. Nguyen The Minh, Director of Analysis – Yuanta Vietnam Securities Company, believes that the race to reduce margin interest rates among securities companies aims to attract more investors to open accounts and increase trading volume for market share competition.
This competition is encouraged and facilitated by the record-low interest rate environment. Mr. Truong Hien Phuong, Senior Executive Officer of KIS Vietnam Securities Company, analyzed that the interest rate level of banks has dropped both for deposits and loans, helping many securities companies (mostly subsidiaries of banks) access low-cost input capital. As a result, securities companies have low-cost capital for lending.
“Many securities companies increased capital last year or are planning to increase capital, which helps abundant capital supply and requires strong lending. Last year, with the sharp decline in market liquidity, stock prices decrease, VN-Index is stagnant, so investors also reduced borrowing, and the demand for margin usage was not high… Recently, the market has become lively again, VN-Index has exceeded 1,200 points, so companies also reduced margin interest rates to stimulate investor participation in the market,” said Truong Hien Phuong.
According to economic expert – TS Dinh The Hien, the demand for margin loans for stock trading has increased in the context of improved market liquidity compared to the previous period. Securities companies have also increased their capital from billions of VND to tens of thousands of billion VND, providing more room for margin loans. Bank capital is abundant, lending interest rates are low, so they are willing to provide capital to securities companies for margin lending.
Not only competing to increase market share, but expanding margin lending also contributes significantly to the revenue of securities companies. At Kỹ thương Securities Company (TCBS), the 2023 business results report showed that the margin loan and pre-settlement loans throughout the year reached 16,600 billion VND, an increase of 78% compared to the previous year. Interest revenue from margin loans and pre-settlement loans in the fourth quarter of 2023 reached 502 billion VND, an increase of 52% compared to the same period. Accumulated throughout the year, this area brought the company’s revenue over 1,600 billion VND.
According to TCBS, the high margin loan balance stems from the positive psychology of individual investors in the context of declining interest rates, making securities an attractive investment channel compared to savings.
Should not be “full margin”
According to Mr. Truong Hien Phuong, under any circumstances, stock investors should not use “full margin” – using the maximum allowable reserve ratio to buy stocks. Because if financial leverage is used excessively, when the market declines sharply, there is a high risk of “margin call” (requirement to deposit additional margin) or forced selling of stocks (force sell).
