One of the main catalysts for this downturn was the cyber attack that targeted its trading system at the end of March, which not only disrupted transactions but also shook investor confidence.
Investors’ Loss of Confidence
In an open letter to its clients, Phạm Minh Hương, Chairman of VND, publicly apologized for the cyber attack that led to several days of halted transactions. She assured investors that while the system and data had been restored, the extensive security checks required to ensure a safe and secure environment caused significant delays. “This attack violated the control of the virtualization system and encryption keys, but it could not penetrate the database or customer data,” Hương explained.
Despite the assurances, the mood among investors was less than optimistic. Many took to stock forums to express their frustration, with a particular focus on choosing a new brokerage firm with a safer and more reliable system. Some even considered legal action, alleging financial losses due to their inability to trade for several weeks following the incident.
The aftermath of the attack was evident in VNDirect’s performance. By the end of the third quarter, its brokerage market share on the Ho Chi Minh Stock Exchange (HoSE) had plummeted to 5.7%, dropping to sixth place. This marked the lowest market share for the company since 2016. In contrast, in the previous two years, VNDirect had consistently ranked in the top three securities firms in terms of brokerage market share, with 7.88% in 2022 and 7.01% in 2023.
Financial Fallout of Declining Market Share
The consequences of the cyber attack were amplified by a growing wave of investor "boycotts." In an effort to mitigate the damage and regain trust, VND introduced several compensation measures in the second quarter. These included offering free trading on underlying securities in April, waiving interest rates for margin trading loans from March 25 until the resumption of the trading system, and eliminating overdraft interest and overnight position management fees for derivative securities traders. They also applied a margin trading loan interest rate of 9.3% in April.
Unfortunately, these measures did little to stem the tide of losses. According to VND's third-quarter financial report, the company saw a significant drop in revenues. Operating revenue fell by 28%, reaching only VND 1,270 billion, while pre-tax profits declined by 22% to VND 620 billion. Analysts pointed to the combination of market fluctuations and the ongoing aftermath of the March cyber attack as the primary reasons for these results. Although gross profit margins showed some improvement from the previous quarter, the gains were largely due to the reversal of loan provisions, rather than any real recovery in operations.
Another red flag in VND’s financials was its stagnant loan growth. For three consecutive quarters, VNDirect’s outstanding loans had remained largely unchanged, standing at nearly VND 10,900 billion by the end of the third quarter. This was in stark contrast to the broader market, which saw outstanding loans grow by VND 56,000 billion, reaching an all-time high of VND 228,100 billion by the end of September. As VNDirect lost market share to competitors, its inability to increase loan volume further reflected the broader decline in investor confidence.
A Risky Appetite for Corporate Bonds
VNDirect has long been known for its aggressive investment in corporate bonds, which had previously been a lucrative source of income. However, the company’s exposure to risky corporate bonds, particularly those related to Trung Nam Group, has become a significant point of concern. By the end of the third quarter, VNDirect’s bond portfolio was valued at VND 13,100 billion, with a large portion tied to Trung Nam Group. This forced the company to set aside more than VND 55 billion in provisions to mitigate potential risks.
At the 2024 Annual General Meeting, many shareholders voiced their concerns about VND's investment in Trung Nam Group. In response, Phạm Minh Hương reassured investors that the company had contingency plans in place and that all corporate bonds issued by Trung Nam Group were backed by collateral, helping to limit financial exposure. However, despite the chairman’s reassurances, many shareholders remained unconvinced, fearing that bad news related to Trung Nam Group could lead to further financial instability.
This fear was not unfounded. On December 4, following the news that Trung Nam Group had reported a staggering after-tax loss of VND 2,878 billion for 2023, and was burdened with a debt of over VND 65,000 billion—2.7 times its charter capital—VNDirect’s stock took a significant hit. The price dropped to its floor limit, down 7% for the day. With the stock now trading at just over VND 13,000, its lowest point in two years, shareholders have grown increasingly anxious about the company’s prospects, particularly as the fourth-quarter results are expected to be disappointing.
VNDirect's ongoing struggles serve as a cautionary tale for securities companies that prioritize growth without adequately safeguarding their systems and investments. The combination of a major cyber attack, a declining market share, poor loan growth, and risky bond investments has placed the company in a precarious position. Despite efforts to offer compensation and improve security, the damage to VNDirect’s reputation may take a long time to repair. As the company heads into the final stretch of 2024, its future will largely depend on how well it can navigate these challenges and restore investor trust. For many shareholders, the current situation feels like a "life and death" issue—one that could have significant long-term implications for the company's survival and growth in an increasingly competitive market.
With the pressure mounting and shareholders expressing concern about further losses, VNDirect faces an uncertain future. Whether the company can recover and reclaim its former position at the top of the market remains to be seen. However, the road to recovery will likely be a difficult one, requiring not just a recovery of systems but also a rebuilding of trust with both investors and clients.
