Brokers seek way to borrow from investors with high interest rates

Employees at VNDirect Securities Corporation. By borrowing from investors while they do not use capital to conduct transactions, securities company can quickly ultilise idle money of investors to significantly improve profit margins (Photo courtesy of VNDirect)

As banks are offering low interest rates, many securities companies are seeking way to mobilise capital from investors by offering higher interest rates.

Securities companies, via a new form of cooperation with their customers, will mobilise capital from customers if they do not use the capital to conduct transactions.

To supplement capital for business, securities companies often borrow from credit institutions. However, this takes time and is not always feasible.

By borrowing from investors while they do not use capital to conduct transactions, securities company can quickly ultilise idle money of investors to significantly improve profit margins. Meanwhile, investors can enjoy profits from the interest rates offered by the securities companies.

When investors need to conduct securities transactions, they can quickly perform transactions without transferring external money from the bank.

Some companies such as the Tri Viet Asset Management Company (TVC), MB Securities (MBS) and VNDirect Securities Corporation (VND) have offered relatively attractive interest rates to customers.

Interest rates for a six-month term are usually 7-8.5 percent per year. For some prioritised customers, the rates can even reach up to 10 percent per year, much higher than the interest rates offered by banks at the moment.

Not only high interest rates, securities companies also offer many terms for investors to easily join, even 1-week terms with a relatively attractive interest rate of 2-3 percent per year.

Banks usually offer interest rates of below 0.3 percent per year for this term length.

For many budding investors, the idle time for money in their account is quite short, most of which last only one to two weeks. If they lend the money to a securities company, they can enjoy high interest rates of 2.5 percent per year for a short term from one to two weeks.

However, this form of cooperation also poses a risk for both sides if the securities company cannot afford to pay interest to investors. So far, the market has not recorded any controversies.

Recently, there has been an explosion of new investors entering the stock market, also known as "F0" investors. Data from the depository center (VSD) shows that in 2020, there were nearly 394,000 securities accounts opened by domestic investors, doubling the previous year.

In the first month of 2020, the market received more than 86,000 newly opened securities accounts and this was also the month with the largest number of new accounts in history.

The entry of a new class of investors has led to a sharp increase in the demand for margin services in the market. By the end of 2020, outstanding loans at securities companies totaled about 90 trillion VND, an increase of about 30 trillion VND compared to the end of Q3 of 2019, most of which are margin loans. This is an all-time record number.

Outstanding loans of margin lending have increased dramatically, causing many securities companies to fall into a shortage of lending sources./.