Applying camel model in analyzing and evaluating the business performance of securities companies

Dissertation submitted in partial fulfillment of the
Requirement for the MSc in Finance

FINANCE DISSERTATION ON
APPLYING CAMEL MODEL IN ANALYZING AND EVALUATING THE BUSINESS
PERFORMANCE OF SECURITIES COMPANIES

….
LE PHUONG ANH
ID No: 21071824
Intake 5

Supervisor: Dr. Bui Huy Trung

September 2022

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Tai ngay!!! Ban co the xoa dong chu nay!!! 17014125817571000000


ACKNOWLEDGEMENTS
I would first like to thank my thesis advisor Dr. Bui Huy Trung of the Banking Academy. The
door to Dr. Trung office was always open whenever I ran into a trouble spot or had a question
about my research or writing. He consistently allowed this paper to be my own work, but steered
me in the right direction whenever he thought I needed it.
Finally, I must express my very profound gratitude to my teacher Mrs. Dang Thi Thao at Banking
Academy for providing me with unfailing support and continuous encouragement throughout my
years of study and through the process of researching and writing this thesis. This
accomplishment would not have been possible without her. Thank you!
Author

Le Phuong Anh

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Table of Contents
ACKNOWLEDGEMENTS ........................................................................................................... 2
INTRODUCTION ...................................................................................................................... 5
CHAPTER I: GENERAL THEORETICAL ISSUES ABOUT ANALYSIS AND EFFICIENCY ASSESSMENT OF
BUSINESS ACTIVITIES OF SECURITIES THROUGH THE CAMEL MODEL...................................... 10
1.1.

Overview of the company's business activities .................................................................. 10

1.1.1.
1.1.2.
1.1.3.
1.1.4.

1.2.

Overview of the company's business performance ............................................................ 14

1.2.1.
1.2.2.
1.2.3.

1.3.

Definition and characteristics of securities companies.................................................................. 10

Functions of securities companies ................................................................................................... 11
Operating principles of a securities company .................................................................................... 12
The activities of securities company: ................................................................................................. 13
Definition: ......................................................................................................................................... 14
The value of business performance analysis .................................................................................. 15
Methods of evaluating business performance ................................................................................ 15

Overview of CAMELS model ........................................................................................... 16

1.3.1.
1.3.2.
1.3.3.

General introduction to the CAMELS model ................................................................................ 16
Contents of CAMEL model applied to Vietnam Securities Company ........................................ 17
Scoring method ................................................................................................................................. 21

CHAPTER II: ANALYZING AND ASSESSING BUSINESS EFFICIENCY OF SECTORS THROUGH CAMEL
MODEL ................................................................................................................................. 24
2.1.

Introduction of securities companies in the study ............................................................. 24

2.1.1.
General introduction about SSI Securities Joint Stock Company (SSI) ..................................... 24
2.1.2.
General introduction about Securities Joint Stock Company Bank for Investment and
Development of Vietnam (BSC) ........................................................................................................................ 25
2.1.3.
General introduction about Asia - Pacific Securities Corporation (APEC) ................................ 26

2.2.

Analysis of the current state of business performance of securities companies ................. 27

2.2.1.
2.2.2.
2.2.3.
2.2.4.
2.2.5.

Capital Adequacy ............................................................................................................................. 27
Asset Quality ..................................................................................................................................... 31
Management ..................................................................................................................................... 34
Earnings ............................................................................................................................................ 36
Liquidity ............................................................................................................................................ 40

2.3.

Result ............................................................................................................................... 42

2.4.

Limitations and causes...................................................................................................... 43

CHAPTER III: SOLUTIONS AND RECOMMENDATIONS TO IMPROVE EFFICIENCY IN BUSINESS
ACTIVITIES OF SECUTITIES COMPANIES ................................................................................. 47
3.1.

Prospects for the development of the securities industry................................................... 47

3.2. Some solutions and recommendations to improve the operational efficiency of securities
companies .................................................................................................................................... 48
3.2.1.
3.2.2.

Solutions for securities companies .................................................................................................. 48
Recommendations for state management agencies ....................................................................... 53

CONCLUSION ........................................................................................................................ 56
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REFERENCES ......................................................................................................................... 57

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INTRODUCTION

1. Rationale of the research:
In July 2000, the Ho Chi Minh City Securities Center was the predecessor of the Ho Chi
Minh Stock Exchange. Ho Chi Minh City Stock Exchange (HOSE) officially opened and opened
the first trading session with only 2 stock codes, marking the birth of Vietnam's stock market.
Two years later, Vietnam's stock market continued to make new strides with the launch of the
Hanoi Securities Center and the Securities Depository Center. At that time, the Hanoi Securities
Center, the predecessor of the Hanoi Stock Exchange (HNX), operated under the model of an
over-the-counter market (OTC) as a secondary market organization for securities that were not
yet available. listed under the agreement mechanism. In 2017, derivative securities were put into
operation with the expectation of helping to diversify investment portfolios, improve the

underlying securities portfolio for investors, especially institutional investors, providing tools to
hedge risks and promote liquidity on the underlying stock market. For more than 20 years,
Vietnam's stock market has continuously improved in structure and developed strongly,
becoming a market with a significant size in the region, contributing to the development of the
national financial system in the direction of a more balanced, sustainable and become an
important capital mobilization channel for the economy. The existence and development of the
stock market must include the great contribution of securities companies, an intermediary
financial institution performing operations on the stock market. Being involved in many
international agreements gives securities companies many challenges and strong competition in
terms of scale and experience. Therefore, the urgent issue now is that securities companies need
to have accurate assessments of their business activities to promote their strengths and overcome
limitations, thereby developing the financial playing field increasingly harshly.
After more than 20 years of operation and development, securities companies have
achieved many successes with certain business results. However, in the face of changing
requirements for further improvement in business activities and sustainable development, even
securities companies with large capitalization to small capitalization need certain metrics to
evaluate their performance. business to improve efficiency and competitiveness in the market.
Recognizing the importance of the problem, I chose the topic: "Applying CAMEL model in
analyzing and evaluating the business performance of securities companies".
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2. Overview of research:
There have been many kinds of research on methods of assessing the business performance of
financial institutions to draw conclusions about strengths and weaknesses in operations or to give
warnings about operational risks, liquidity risks, etc. accounts ,and financial risks. Among them
is the CAMELS model, a useful tool to check the soundness and safety of financial institutions.
This is also the main research direction of most of the research done in recent years. The author
has summarized those studies and has the following results:
Domestic research:

Author Nguyen Thi Diem Hien et al (2019) with the study "Application of the CAMELS rating
system to evaluate the performance of Vietnamese commercial banks from 2018 to 2012". Many
Vietnamese banks have revealed weaknesses in their operations since the 2018 world financial
crisis, leading to restructuring. Although commercial banks periodically announce operating
results through financial indicators, these indicators have not been correlated in evaluating the
performance of commercial banks. From that fact, the study applied the CAMELS model to
evaluate the operation of commercial banks.
With the topic "Financial safety of Vietnamese securities companies" by Hoang Thi Bich Ha
(2018), the study used the CAMEL model to comprehensively and systematically analyze the
current state of financial safety. of Vietnam's securities companies from the period 2012 - 2016
according to each group of evaluation criteria, thereby comparing with Vietnam's evaluation
standards and international practices. Moreover, the research has pointed out the causes leading
to this situation and proposed a system of solutions to ensure financial safety.
Author Doan Dang Qui An (2010) with the topic "Evaluating the business performance of listed
securities companies". The study evaluated the efficiency through the profitability indicators and
the group of performance-related indicators from securities companies representing different
capital sizes in 2009. The special thing in the study is that The number of securities companies
exploded during the research period, so the object of the study reflected the current situation of
securities companies quite clearly. However, the study mainly focuses on analyzing the causes
and proposing solutions to improve the performance of securities companies.
Foreign Studies:The study by Bawaneh and Dahiyat (2019) provides a comprehensive
assessment of the financial situation of commercial banks in Jordan listed on the Amman Stock
Exchange using the CAMELS model. Linear regression and other statistical methods were used
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to measure the impact of factors in the CAMELS model on the financial performance of
commercial banks.
Guan et al (2019) used the improved G-CAMELS model based on the CAMELS model with the
addition of a green index (G) to more effectively assess the competitiveness of commercial banks

in China and from that compare the results between the two models. The research results are that
compared with the original CAMELS, the new model will raise the ranking of state-owned banks
and there will be no significant change in the ranking of joint stock banks.
In addition, a few works have had other research directions to evaluate the reliability of the
CAMELS model with the role of activity monitoring and risk warning when compared with other
assessment methods. Typically, the study of Babar and Haseeb (2011) examined the relationship
between the CAMELS model and the PACRA model for Pakistani banks. The CAMELS model
is considered an internal credit rating, so the ratings are not public, while the PACRA rating
system assesses external factors and is published monthly. In fact, the research results show that
there is no similarity between the two models and the CAMELS model should not be relied on to
evaluate the performance of banks, but it is necessary to consider more criteria in the model
PACRA.
However, the study of Christopoulos et al. (2011) provided evidence that the CAMELS model
had predictive results about the collapse of Lehman Brothers based on the analysis of financial
characteristics during the period. 2003 – 2007. Research results show that Lehman Brothers has
bad credit and is questionable while management is not ready nor able to change the situation. In
addition, the management failed to comply with the regulations of the supervisory authority when
managing risk.
Research gaps:
Firstly, in general, the researches in the world on assessing the business performance of financial
institutions of different countries are very diverse. These studies have shown that the popular
method used to evaluate the performance of financial institutions is the CAMEL model.
However, most studies focus on evaluating the performance of the banking system, there are not
many studies on the business performance of other financial institutions such as securities
companies.

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Secondly, in domestic research works, many authors have mentioned some methods of evaluating

the effectiveness of securities companies. However, there have not been many in-depth studies on
the performance of Vietnamese securities companies using the CAMEL model in the period of
2018 - 2020, this is the knowledge gap that the thesis will focus on solving.ance of Vietnamese
securities companies using the CAMEL model in the 2018 period.
3. Research objectives:
Based on studying general theories about the business performance of securities companies,
thereby analyzing and assessing the actual status of operations of securities companies: SSI
Securities Company, Investment and Development Bank Securities Joint Stock Company
Development of Vietnam, and Asia-Pacific Securities Corporation under the CAMEL framework
based on data collected from financial statements, and at the same time comparing performance
between securities companies. From there, a number of solutions and recommendations are
proposed to improve the business performance of securities companies.
4. Research scope:
- Research object: Business performance of securities companies.
- Research scope:
+ About space: The topic studies the performance of securities companies based on data collected
from audited consolidated financial statements and annual reports.
+ About time: Over a three-year period from 2018 to 2020.
5. Research methodology:
- Method of data collection: data collection of financial statements on company websites and
other references.
- Methods of analysis and synthesis: based on collected data, process and analyze depending on
the purpose and object to be analyzed.
- Comparative method: compare financial indicators between securities companies in 3 years
2018, 2019 , and 2020 from which to draw comments.

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6. Structure:

The desertation consists of three main chapters:
Chapter I: General theoretical issues on analysis and evaluation of the business performance of
securities companies through the CAMEL model.
Chapter II: Analyzing and evaluating the business performance of securities companies through
the CAMEL model.
Chapter III: Solutions and recommendations to improve the efficiency in business activities of
securities companies.

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CHAPTER I: GENERAL THEORETICAL ISSUES ABOUT ANALYSIS AND
EFFICIENCY ASSESSMENT OF BUSINESS ACTIVITIES OF SECURITIES
THROUGH THE CAMEL MODEL

1.1.

Overview of the company's business activities

1.1.1.

Definition and characteristics of securities companies

a. Definition:
The securities company is an enterprise dealing in securities as a member of the Stock Exchange.
The concept of the securities company has been specified in Clause 1, Article 2 of Decree No.
86/2016/ND-CP as follows:
The securities company is an enterprise established and operating under the securities law to
perform one, several, or all of the following operations: securities brokerage, securities trading,
securities underwriting, investment consulting securities, and be provided with financial services

in accordance with the securities law.”
The securities company is understood as an intermediary financial institution on the stock market,
in the form of a Joint Stock Company or a Limited Company, established and operating in
accordance with the Laws, performing one or several securities business operations under direct
management. next to the specialized management agency is the State Securities Commission. The
financial institution is a concept to refer to organizations performing the function of directing
capital from those who have it to those who need it. Securities companies will be responsible for
arranging transactions for customers and will have a commission on each transaction between the
parties.
b. Characteristics:
A securities company is an intermediary financial institution operating in a highly sensitive
market with great influence on the economy. Therefore, having to meet the conditions prescribed
by the law as well as the specific principles of conduct of the securities industry are the
characteristics that distinguish the activities of securities companies from other types of
enterprises.
- Capital characteristics: In order to protect the market and the interests of investors, along with
ensuring the operation of securities companies themselves, each country clearly stipulates the
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level of legal capital for investors. Securities companies are eligible to establish and come into
operation, even though each business operation of the securities company has its own legal
capital levels.
- Characteristics of the leadership team and personnel: With the need to operate in a complex
market that has a great influence on the economic security of a country, the leadership team and
personnel of the securities companies must are people who have both a high level of education
and expertise, have special degrees and certificates that meet the requirements under the laws of
each country, and have professional ethics to be able to work properly. , disinterested.
- Characteristics of conflict of interest: When doing business, with its specific business
operations, it is inevitable that there will be a conflict of interest between customers and

securities companies. Operations such as brokerage and securities consulting are easy to lead to
these conflicts when the consultants and brokers for their own benefit damage the assets of
customers. This is the reason that the personnel of the securities companies urgently need people
with professional ethics to prevent the above situation from happening.
- Characteristics of technical facilities: To ensure the seamless, accurate and timely transmission
and processing of information, mainly electronic information, the infrastructure, and technology
Modern, safe technology is the top priority of securities companies, it is also the guarantee for the
interests and interests of investors themselves, helping investors to grasp information quickly.
1.1.2.

Functions of securities companies

Through activities on the stock market, securities companies have shown an important role for the market
in general and the participants in the market in particular.
Firstly, securities companies create a mechanism to mobilize capital for businesses and the economy.
Thanks to the Securities Company, the issuer's securities are available to investors regardless of where
they are and are circulated on the market. Thereby mobilizing a large amount of capital to serve the
development of enterprises in particular and the economy in general.
Securities companies with professional expertise and professional experience have helped issuers save
time and effort to ensure a successful issuance and increase the supply of goods for the stock market.
Second, securities companies contribute to stabilizing stock prices in the market. Securities companies
with proprietary trading activities together with the provisions of the law have contributed to the stability
of securities prices as well as creating a market for newly issued securities.

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Third, securities companies contribute to the creation of new products and services in the market.
Securities brokerage activities are activities in which stockbrokers can grasp the needs of customers and
reflect the company's product research and development department so that Launching new products and

services to meet customer requirements. Therefore, brokerage activities are one of the channels that
provide ideas to design products and services according to customers' needs. The result of that process is
creating a diversity of products and services, diversifying the customer structure.
Fourthly, securities companies help the market management agency effectively manage and supervise
activities in the market. One of the obligations of a securities company is to provide market information to
regulatory agencies for the purpose of market management. Securities companies are both underwriters
for securities, as well as intermediaries for buying and selling securities and performing transactions on
the market. Therefore, information about the issuer or information related to securities trading
transactions. securities, information on the ownership rate of foreign investors... are reported by the
securities company to the management agency. As a result, market management agencies can control and
combat the phenomenon of manipulation, manipulation, and distortion of the market. On the other hand,
through that information, the management agency can grasp the market situation so as to have appropriate
policies and measures for market development.
Fifth, securities companies contribute to reducing transaction costs, reducing risks, and improving
investment efficiency for investors. Buying and selling securities through securities companies will help
investors significantly reduce the cost of finding partners, thereby saving transaction costs and liquidity
for securities. At the same time, securities companies will help investors reduce risks in the buying and
selling process, ensuring that investors receive real securities when buying and receive money when
selling. The advisory role of securities companies will also help investors achieve higher investment
efficiency.

1.1.3.

Operating principles of a securities company

Activities of securities companies affect the interests of investors participating in the market. Therefore, in
order to ensure the rights as well as fairness among market participants, securities companies must comply
with general principles when conducting operations. These principles are specified in legal documents for
securities companies. Operating principles of securities companies are divided into two:
Financial principles

+ Stemming from the characteristics of securities companies that must meet legal capital for business
activities, in the course of business, securities companies must ensure financial resources in their
commitments to securities trading with customers.

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+ Ensure capital requirements, capital structure, and principles of accounting and reporting as prescribed
by law.
+ Ensure the separation of customers' cash and securities assets from the company's assets. Securities
companies may not use customers' securities as collateral to borrow capital or use customers' money to
buy securities for the company unless the customer agrees in writing. This principle is put in place to
avoid risks to customers.
Principles of professional ethics
Securities company employees must comply with the code of professional ethics issued by the Association
of Securities Traders. This set of principles aims to ensure honesty and fairness in the work of securities
company employees. This principle includes the following key points:
+ Fair and honest transactions for the benefit of customers
+ Company employees must be skilled, dedicated to work, and have a sense of responsibility.
+ Prioritize the execution of customer orders before the company's orders.
+ Having the obligation to keep the customer's information confidential, and not to disclose information
about the customer's account without the customer's written consent unless requested by the state
management agency.
+ Do not engage in business activities outside the scope of licensing.
+ Do not conduct activities that may mislead customers and the public about the price, value, and nature
of securities or activities that cause damage to customers.
+ With the activities that securities companies provide to customers, there must be a contract with the
customer before performing the service.

1.1.4.

The activities of securities company:

Securities brokerage: Securities brokerage means a securities company acts as intermediary in
the purchase or sale of securities on behalf of a client.
Self-trading: Self-trading means a securities company purchases and sells securities for itself.
Underwriting: Underwriting means an underwriter undertakes to an issuing organization to
complete procedures prior to the offer for sale of securities, receives some or all of the securities
of the issuing organization for re-sale, or purchases the amount of the remaining undistributed

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securities of the issuing organization or assists the issuing organization to distribute securities to
the public.
Securities investment consultancy: Securities investment consultancy means a securities company
provides results of analyses, announces analytic reports and makes recommendations regarding
securities to investors.
Securities depository: Securities depository means the receipt of securities for deposit,
preservation, transfer and delivery on behalf of clients, and assistance to clients to exercise their
rights relating to ownership of such securities.
Securities investment fund: Securities investment fund means a fund established from capital
contributions of investors in order to make a profit from investment in securities or other property
including real estate, whereby the investors to not have day to day control over the investment
decision-making of the fund.
Portfolio management: Portfolio management means a securities investment fund management
company manages the purchasing, selling and holding of securities pursuant to authorization
from each investor.
1.2.

Overview of the company's business performance

1.2.1.

Definition:

Analysis of business performance is a research process to evaluate the entire process of implementing
business strategies as well as the results of business activities, based on data reflected by departments,
accounting documents, and economic information by appropriate methods as a basis for making correct
and timely decisions, plans and solutions, and clarifying potential sources that need to be exploited in
order to improve high quality of securities operations.
Analysis and evaluation of business operations of a securities company is a combination of using financial
and non-financial information to reflect the business performance and financial position of the securities
company in combination with the economic circumstances, thereby assessing the current strengths and
weaknesses of the securities company, which is the basis for making strategic adjustment decisions.
Financial information is mainly used from the financial statements of securities companies. From the
collected information, we will conduct statistics, analyze the ratio as well as compare it with the past and
present situation, and compare data with other securities companies to evaluate the business capacity of
the company. securities companies. In addition, the simultaneous use of non-financial information from
the socio-economic situation... contributes to helping managers identify opportunities and challenges and
use that as a basis for formulating strategies. appropriate and effective management.

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1.2.2.

The value of business performance analysis

Business performance analysis is an important basis for making business decisions. In particular, analysis

is very important for managers, helping them make the right decisions as well as future plans and
strategies.
On the other hand, business performance evaluation is a tool to detect hidden capabilities in the business
so as to improve the management mechanism. Any business activity under different operating conditions,
however, still has potential undiscovered potential and can only be discovered and exploited through
analysis and assessment of enterprises. exploiting them brings higher economic efficiency. Through
analysis, managers can clearly see the causes and origins of problems and have solutions to prevent
business risks.
Business analysis documents are not only necessary for internal managers inside the enterprise, but also
for other external objects, when they have a relationship of resources with the enterprise, because
information Only through analysis can they make the right decisions in cooperation, investment, lending,
etc. with businesses.

1.2.3.

Methods of evaluating business performance

a. Traditional analytical methods
The traditional method uses ratios based on two financial variables through which to evaluate,
analyze and conclude the operating results of securities companies. Financial ratios used are
divided into three groups:
- Group of ratios reflecting profitability.
- Group of ratios reflecting business ability.
- Group of criteria for assessing operational risk.
The method of evaluating business performance through financial indicators has the advantage of
being simple, easy to use, and easy to understand. However, each group of ratios reflects only
one aspect of the business performance sporadically without clearly showing a correlation with
each other.
b. Modern analytical methods
The analysis according to current methods is mainly based on evaluation models. Each model

focuses on a certain aspect to conduct evaluation and has certain advantages and disadvantages.
In particular, the CAMELS model is considered the standard for most financial institutions
worldwide. CAMELS is a model that synthesizes 6 micro-measures of a financial institution:

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capital adequacy, asset quality, manageability, profitability, liquidity, and sensitivity. with the
market.
Specifically, the advantages of this model are: Firstly, the CAMELS model includes many
important analytical criteria and is highly applicable in the management of financial institutions.
In particular, these indicators are closely related to each other, not separate. Secondly, CAMELS
is an analytical model that simultaneously evaluates both quantitative and qualitative factors,
synthesizing factors measuring the strength and safety of financial activities of a financial
institution. Third, the application of the CAMELS model can predict the current operating status
and potential financial crisis in financial institutions. Thereby limiting risks in business activities
as well as ethical risks and thereby planning future operations effectively.
Despite its many advantages, the CAMELS model still has some limitations: Firstly, the data for
CAMELS analysis is still mostly based on available information sources for assessment, so the
analysis may be biased. if the data source is incorrect. Second, the analysis requires a lot of
experience as well as knowledge of the analysts because the judgments depend on the subjective
opinions of the analysts.
1.3.

Overview of CAMELS model

1.3.1.

General introduction to the CAMELS model

CAMELS is an American bank rating and monitoring system and is considered the standard for most
organizations around the world when assessing the effectiveness and risks of banks in particular and
financial institutions in particular. shared. This model was first approved by the US Federal Financial
Institutions Review Board (FFIEC) in 1979. After the Asian economic crisis in 1997, the CAMELS
system was adopted by the International Monetary Fund (IMF) and The World Bank recommends
applying it in crisis-hit countries as one of the measures to rebuild the financial sector.
Initially, CAMEL was the English abbreviation for 5 factors, which, according to the world banking
community, are needed to maintain the soundness, stability, and efficiency of a financial institution. They
are C (Capital Adequacy) – Level of capital adequacy, A (Asset Quality) – Quality of assets, M
(Management) – Management capacity, E (Earnings) – Profitability, L (Liquidity) Exposure) – Liquidity.
After 1997, the constituent elements of CAMEL were added with one more content, which is S
(Sensitivity to market risks) - Sensitivity to market risks, from which there is the CAMELS system as it is
today.
The analysis results will help analysts divide financial institutions by rating from A to E. Grade A (from
80 to 100 points): Financial institutions perform well above the general average. Grade B (from 65 to less
16


than 80 points): Financial institutions operate at an average level or not much above average, just enough
to reach a safe level. Grade C (from 50 points to less than 65 points): TCTC's performance is below
average. Grade D (from 35 to less than 50 points): Financial institutions operate not reliably, much lower
than the average, and need to be monitored to avoid the risk of loss of operational capacity. Grade E (from
0 to less than 35 points): Financial institutions operate very poorly and are at risk of losing operational
capacity, requiring immediate attention and supervision. Ratings that are too high or too low for one
component may result in an up or down adjustment of ratings for other components.
Based on Decision No. 617/QD-UBCKNN dated October 9, 2013, of the State Securities Commission,
securities companies will be evaluated and classified according to the CAMEL model including the
following contents: C (Capital Adequacy) – Capital adequacy, A (Asset Quality) – Asset quality, M
(Management) – Management capacity, E (Earnings) – Profitability, L (Liquidity Exposure) – Liquidity.
The CAMEL set of indicators is divided into two groups of factors: financial indicators (C, A, E, L) and

governance criteria (M). The group of financial factors can be assessed according to data from financial
statements, annual reports, and other financial data that have been reviewed or audited in accordance with
the law. Governance criteria are a separate factor because this factor is too difficult to quantify and is
mainly based on qualitative criteria.

1.3.2.

Contents of CAMEL model applied to Vietnam Securities Company
a. Capital Adequacy

Applying the CAMEL model to Vietnamese securities companies, the capital adequacy level
includes 3 indicators:
- C1 – Equity/Total Assets ratio, where the value of total assets does not include investors'
securities trading deposits, must ensure that investors' deposits are segregated from company
assets to avoid conflicts of interest. This indicator represents the level of real equity in total assets
that brokers are allowed to use. This high ratio shows that the securities company has good
financial autonomy, and less dependence on loans, so it is not under much pressure from debts.
- C2 – Equity/legal capital ratio. Legal capital is the capital regulated by the State that brokers
must secure if they want to carry out one or certain business activities mentioned in the legal
framework. This ratio indicates, after a period of operation, whether the securities company still
meets the legal capital requirements.
- C3 – Ratio of available capital. This ratio is also known as the financial adequacy ratio, an
indicator developed and issued by the Ministry of Finance in accordance with Circular No.
226/2010/TT-BTC on December 31, 2010, and subsequently amended. and supplemented in
17


Circular 165/2012/TT-BTC dated October 9, 2012. This ratio is determined as a percentage
between available capital and total risk value, where the total risk value includes: market risk,
settlement risk, and operational risk.

Table 1.1: The weights of the ranking criteria in the C factor
Target
name

C1

Value

Value

Score

From 0%

Less than 51%

20

From 51%

Less than 75%

80

From 75% trở lên

C2

10%

100
Less than 60%

0

From 60%

Less than 100%

30

From 100%

Less than 150%

60

From 150%

Less than 200%

80

From 200% or more

C3

Weight

10%

100
Less than 120%

0

From 120%

Less than 150%

20

From 150%

Less than 180%

40

From 180%

Less than 300%

80

From 300% or more

10%

100

(Source: Regulations guiding the classification of securities companies of the State Securities
Commission)
b. Asset Quality
The asset quality of securities companies is evaluated based on the following three criteria:
- A1 – Ratio of total assets after risk adjustment/Total assets (excluding fixed assets). Assets after
risk adjustment = Total assets (excluding fixed assets) – Total value of potential risk in asset
categories. The establishment of risk values is calculated according to Circular No. 226/2010/TTBTC dated December 31, 2010, and Circular 165/2012/TT-BTC dated October 9, 2012, by the
Minister of Finance. main. Financial safety is guaranteed when this ratio is higher.
- A2 – Provision ratio/(Short-term investments + long-term investments + Receivables)
- A3 – Receivables/Total Assets ratio.
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Accordingly, this will be the first time that securities companies are ranked in terms of
receivables. At the same time, indexes A2 and A3 need to be ensured not to exceed a maximum
level to ensure financial safety.
Table 1.2: The weights of the ranking criteria in the A factor
Target
name

A1

A2

A3

Value

Value

Score

Less than 50%

0

From 50%

Less than 65%

20

From 65%

Less than 80%

50

From 80%

To 90%

80

From 90% and more

100

From 10% and more

0

From 8%

Less than 10%

20

From 5%

Less than 8%

50

Over 0%

Less than 5%

80

0

100

From 90% and more

0

From 75%

To 90%

20

From 50%

To 75%

50

From 25%

To 50%

80

Less than 25%

100

Weight

5%

10%

10%

(Source: Regulations guiding the classification of securities companies of the State Securities
Commission)

c. Management
There are 19 criteria to evaluate Management Quality, but most of them are qualitative and
require information gathering from many sources other than financial statements, including
internal data sources. For example, criteria No. 3 and No. 4 require the number of years of
experience in the financial/security sector of the Chairman and the Director/General Director, or
criterion 3 refers to the modernity of the system. information technology… These criteria are
difficult to quantify and require a relatively large source of internal information. Some other
indicators require information from all brokers in the industry, such as criterion 12: Proportion of
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stock trading volume through the company (across two departments)/Total market turnover (total
transaction turnover of the two departments).
d. Earnings
Profitability includes the following two criteria:
- E1 – Profit after tax/Total revenue.
- E2 – Profit after tax/Average equity.
The higher the value of these indicators, the more secure the financial security of securities
companies will be.
Table 1.3: The weight of the ranking criteria belongs to the factor E
Target
name

E1

Value

Value

Score

< -10%

0

From -10%

Less than 0%

20

From 0%

Less than 5%

50

From 5%

Less than 20%

70

From 20% and more

E2

Weight

10%

100
< -5%

0

From -5%

Less than 0%

20

From 0%

Less than 5%

50

From 5%

Less than 25%

70

From 25% and more

10%

100

(Source: Regulations guiding the classification of securities companies of the State Securities
Commission)
e. Liquidity
Liquidity includes 2 criteria:
- L1 - Ratio of short-term assets (excluding investors' securities trading deposits)/Current
liabilities. The higher the value of the ratio, the larger the amount of assets of the company,
leading to the higher the company's ability to pay its debts.

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