FiinRatings' opinion on VCI's A- credit rating and Stable outlook reflects its assessment of the risks and prospects of the Vietnamese securities services sector, as well as VCI's business risk profile and financial position.

FiinRatings assesses VCI's business position as Strong thanks to its leading position in institutional client brokerage activities, demonstrated by its market share of 25-29 per cent in this segment over the last three years. This contributes to the stability of brokerage revenue and limits the impact of the recently witnessed declining stock market liquidity from retail investors.

VCI is also among the five largest securities companies by revenue and total assets and has proven expertise and competence in investment banking activities. Its diversified income structure helps VCI reduce the impact of unfavourable market movements.

FiinRatings assesses that VCI's solid position in the institutional client brokerage and investment banking segments is fundamental in allowing the company to sustainably expand its business to retail clients in the future.

Meanwhile, VCI's capital, leverage, and earnings are assessed as Adequate and are appropriate for its capital-related activities such as investments and margin lending. VCI’s debt to equity ratio adjusted for long-term and low-liquidity investment positions in unlisted companies as of June 30 is still equivalent to the industry median for securities companies.

Additionally, VCI's operating efficiency and profitability are at a relatively good level, as shown by its return on equity, which has been consistently in the 18-25 per cent range over the past 8 years – compared to the volatile 7-22 per cent range of the sector over the same period.

The company has also implemented a conservative growth strategy, which does not prioritise price competition but focuses on service quality to attract customers and optimise profitability and efficiency.

According to FiinRatings' assessment, VCI's risk position of Adequate, reflected by a comprehensive and prudent risk management policy, moderate-risk appetite, low-risk concentration, and the development of IT systems to help automate transaction processing, ensures that there are no bad debts in the company's margin lending activities.

Given VCI’s exposure to investment activities, FiinRatings assessed the company’s risk management capabilities and investment philosophy as key factors underpinning its ratings.

VCI’s investment philosophy focuses on the long-term potential of investees, at the same time leveraging the company's advantages in investment banking and its research competency. Nevertheless, large exposure to unlisted companies with low liquidity levels is also a limitation to the company's credit rating.

Diversification of funding sources allows VCI to increase flexibility in capital management and maintain liquidity at a strong level. Based on FiinRatings' analysis, the company is likely to maintain a good level of liquidity, with liquidity sources remaining at 1.2 to 1.3 times its liquidity use over the next 12 months.

In FiinRatings' opinion, diversified funding sources with low-cost foreign syndicated loans and undrawn credit lines from domestic banks provide flexibility in the company's financial plan to adapt to market conditions. With relatively effective risk management, FiinRatings believes that VCI's liquidity will remain at a strong level for the next 12-24 months.

In addition to the above-mentioned factors, FiinRatings also assesses Vietnam’s regulatory landscape and the specific risks to the financial services industry and the securities services sector.

Compared to the banking sector, the revenue sources of securities brokerage companies are more diverse, but the majority of these sources are also heavily exposed to fluctuations in market movements.

While facing market risks, securities brokerage companies are unable to access diverse sources of funding, unlike banks. However, when compared to other financial sectors such as consumer finance, securities brokerage companies benefit from the development and improvement of the regulatory framework as well as close supervision from the State Securities Commission of Vietnam.

FiinRatings' analysts stated, "The Stable outlook reflects our view on VCI’s credit rating maintaining at the same level for the next 24 months. For this year, we do not incorporate the continuation of exceptionally strong capital markets conditions experienced in 2021. We assess that the possible decline in indices and market liquidity will have a negative impact on the majority of securities brokerage companies. However, we believe that VCI’s financing and cost structure give the company the flexibility to cope with unfavourable market conditions. A company with a diverse revenue structure and an established institutional client base like VCI may have a better shield against negative market conditions."

With regards to the upside scenario, VCI's brokerage market share has improved significantly with good operating efficiency, the application of strict risk management policies, and a larger contribution to income structure from brokerage and margin lending activities as a result of expanding its business scale and customer base, especially in terms of retail customers.

In terms of the downside scenario, a significant reduction in VCI’s market share could result in the company’s inability to sustain its position amongst the top 10 Vietnamese securities firms. Any material worsening of the capital structure and earnings profile of the company in excess of the expectations or unusual market conditions could affect the company's liquidity and profitability.