FiinRatings: Credit Rating Announcement on MB Securities Joint Stock Company (A- | Outlook: Stable)
April 25 2022
Hanoi, Apr 25, 2022
FiinRatings today announced that it has assigned a first-time Long-term Issuer Credit Rating 'A-' to MB Securities Joint Stock Company (“MBS” or “the Company”) with the Outlook: Stable.
FiinRatings’ opinion of ‘A-/ Stable’ on MBS reflects the company’s strategic importance to its founding shareholder and one of Vietnam’s largest commercial banks, Military Commercial Joint Stock Bank (“MBBank”). The rating opinion also reflects MBS’ established market presence with a sustained market share within the top 10 players in brokerage service, its strong risk management systems and stable revenue streams primarily comprising of less volatile broking and margin lending segments. Further, we believe there exists a potential of capturing MBBank’s large and mostly untapped client base, which if targeted appropriately, can assist MBS in improving its market share to the top 5 players in the brokerage segment in the next few years. These rating strengths are partially offset by MBS’s moderate capital structure marked by relatively high gearing levels and exposure to uncertainties inherent in capital market-related businesses.
FiinRatings assesses MBS to be strategically important to its parent, MBBank which holds majority stake in the company since its inception in 2001 (79.4% as on Dec 31, 2021).
MBS’ business position is “Adequate”, with a consistent presence as one of the top 10 securities brokerage companies in Vietnam in terms of market share, an established client base and good diversity in terms of product and distribution channels. The company’s focus on the less risky brokerage and margin lending activities, which together accounted for more than 60% of MBS’ total revenues in the last five years and 72% in 2021 alone, compared to the industry average of 47%.
MBS’s profitability is comparable to other securities companies while owner’s equity increases at a slower pace to match MBS’s business expansion demand. MBS’ earnings are assessed as “Adequate” and capital is “Moderate”, with room for improvement: MBS delivered strong earnings performance during the period 2018-2020, its ROE ranged around 13-15% during this period compared to a modest 10-14% level for its peers. While the company underperformed during the ‘blooming year’ 2021 with and ROE of 21.4%, we believe it was due to its conservative expansion strategy. MBS did not apply aggressive price competition and somewhat lagged behind other securities companies in terms of a developed digital trading platform. We believe the company has improved its systems and platforms and is well placed to demonstrate an improved earnings profile compared to 2021 levels in the long term given favorable market condition.
Effective risk management systems with modest risk appetite: In our opinion, MBS has established an adequate and effective risk management system, proven by the fact that there has been no bad debt incurred since 2012, thanks to the Company’s conservative risk management policies and its real-time trading system that can execute a large volume of trades. MBS and its parent, MB Bank revised the company’s risk management systems post the 2011-2013 restructuring in order to ensure that MBS is prepared to handle any risks that may arise from its operation. In addition, MBS has a modest risk appetite compared to its peers as the Company does not highly rely on proprietary trading (only accounts for 20% of revenue in 2021), which is subjected to market risk. Majority of MBS’s trading portfolio is mainly occupied by CDs, Treasury Bonds, and Corporate Bonds in financial services, real estate and energy sectors. We believe the company has adequate risk management systems which will enable it to scale its business as planned without impacting its risk profile.
The diversification of liquidity sources allows MBS to flexibly manage its capital and sustain adequate liquidity profile: Based on FiinRatings’ stress test, MBS has adequate liquidity buffers with liquidity sources over 1.2x-1.3x of its liquidity use in the next 12 months.
We also assess the Vietnam’s regulatory landscape as well as specific risks to financial services industry and the securities brokerage sector. Compared to the banking sector, the revenue sources of securities brokerage companies are more diverse, but majority of these sources are also heavily exposed to fluctuations in the market movements. In addition to facing market risk, securities brokerage companies are unable to access diverse sources of funding unlike banks. On the other hand, when comparing to other financial sectors such as consumer finance, securities brokerage companies benefit from the development and improvement of the regulatory framework as well as the close supervision from the State Securities Commission (SSC) of Vietnam. All mentioned earlier, regulatory and industry aspects are also factored into the credit rating of MBS.
KEY CREDIT FACTORS FOR AN UPGRADE OR DOWNGRADE OF THE RATINGS
FiinRatings ‘Stable’ outlook on MBS reflects our expectations that the company will continue to benefit from the majority ownership and strong support from its parent in the medium term. Further, the company is expected to maintain its market presence as one of the leading brokerage companies in Vietnam with presence in relatively less volatile segments like broking and margin lending on the back of its sound risk management practices. The company’s ability to raise timely and adequate capital to fund its growth plans and improve is moderate capital position will be a key rating monitorable. Further, any change in the level of support or ownership from MB Bank which is beyond our expectations will also be a key factor for the rating.
Read the full rating announcement HERE.
FiinRatings, a brand and part of FiinGroup, is licensed by the Ministry of Finance to operate as a Credit Rating Agency (“CRA”) for Vietnam on 20 March 2020. With continuous effort to improve expertise and credit rating methodologies, on 24 May 2021, FiinRatings received Technical Assistance from S&P Global Ratings and ADB. On March 10th, 2022, FiinGroup has been officially approved by the Climate Bonds Initiative (CBI) as the first authorized company in Vietnam to verify green bonds issued by Vietnamese businesses when participating in CBI's program.
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