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 Supervisor: Dr Bui Huy Trung September 2022 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 Table of Contents ACKNOWLEDGEMENTS INTRODUCTION 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 REFERENCES 57 INTRODUCTION 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 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" 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 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 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 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 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 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 years 2018, 2019 , and 2020 from which to draw comments 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 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 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 10