MARKET RISK 
 
SSI's core business activities exposed to market risks include investments in bonds, shares, deposits, margin lending, and derivative products. 
 
Revenues from these activities are affected by fluctuations in interest rates, stock prices, derivative indexes, possibly due to market conditions or changes in monetary policies or macro policies of the government of Vietnam or other countries concerned, possibly due to geopolitical turmoil as well as other legal regulations. When interest rate and stock price fluctuations are unexpected, there exists the risk that revenue and profit of the Company would move in adverse direction. 
 
To mitigate these risks, SSI ensures that risk management is carried out in a specialized manner and separated by risk types and that there is close coordination among related department with Risk Management from monitoring, assessment, market view and prediction, and investment strategy, to the limit system, risk diversification strategy, risk warning and handling process.
 
Investment in deposits/ bills/ bonds/ margin lending
 
As of December 31, 2018, SSI’s equity reached more than VND 9,156 billion; total assets were over VND 23,825 billion; average deposit balance was VND 3,373 billion; average margin lending balance reached more than VND 5,633 billion. Cash inflows and outflows fluctuated regularly due to payment activities, clients' borrowings/repayments, and investment disbursements, occurring daily without a specified time frame. Such operations required SSI to balance capital and interest rate to optimize returns and realize predictions on interest rates. Even with modest interest rate fluctuations in 2018, SSI Treasury still managed to optimize interest rates trading, contributing a significant part to the Company’s revenue while ensuring the highest level of safety. 
 
To anticipate the risk of stock price volatility that affects margin lending, the Company conducts assessment of macroeconomic conditions, market systematic risk, change in legal regulations and Government's policies related to specific sectors, geopolitical issues and global commercial and economic issues that may impact the overall market or a specific sector either periodically or unexpectedly upon occurrences of events for appropriate adjustments in margin lending activities.
 
Investment in stocks
 
The stock portfolio was directly affected by the internal factors of the economy as well as international fluctuations. Unexpected movements of macroeconomic factors may cause stock prices to fall and negatively affect business performance of securities companies. 
 
In 2018, taking advantage of market opportunities, SSI made appropriate divestments to gain expected profits, while continued to invest in essential sectors of the economy with stable development potential. In addition, the management of post-disbursement investments was also carried out in a strict and thorough manner, evidencing through the assignment of specialized staff to each group of enterprises, who paid regular site visits and directly worked with senior leaders to understand the vision, strategy, and operational plans of these enterprises. In particular, SSI also appointed its representatives to act as members of the BOD and/or the BOS and/or Board of Management at enterprises where SSI had a sufficiently large ownership ratio.  As a result, SSI could accompany the enterprise in all aspects of operation for better management of its portfolio.
 
Investment in derivatives
 
The year 2017 marked official launch of the derivative market. In this context, SSI was one of the first securities companies to be licensed for derivative securities trading.  With careful preparation in terms of human resources, systems and processes, risks incurred from strong fluctuations of derivatives in 2018 had been dealt properly with to ensure safety for the Company.
 
The Risk Management Department always monitored daily market developments so that timely response measures could be taken to limit risks if necessary.
 
CREDIT RISK
 
The Company's credit risk arises mainly from margin lending activities, and investments in bank deposits and bonds. The risks arise when a partner fails to pay a part or all of its debt obligations to SSI when due.
 
Investments in Deposits
 
Investments in deposits at commercial banks are considered to have the lowest level of credit risk; However, if occurring, such risk can cause great damages. Therefore, SSI always reviews careful before conducting transactions with Banks based on the Banks' credit rating, followed by periodic reassessment. Each commercial bank would be assigned a specific deposits limit depending on their specific credit rating, as well as certain terms and conditions, to ensure maximum capital preservation. At the same time, SSI established overdraft limit mechanism with multiple banks for simultaneous operation with bank deposits. This allows the Company to maintain liquidity capabilities while ensuring flexible capital uses and providing for credit risk, as bank deposits contracts always have provisions for flexible withdrawal of the overdraft facility. During our 18 years of operation, SSI has incurred no irrecoverable bank deposits. This is an achievement that testifies for our highly effective credit risk management activities.
 
Margin Lending
 
Margin lending refers to collateral lending activities, secured by clients' loan portfolios that have been approved by both SSI and SSC for margin lending. Credit risk arises when the Company is unable to recover sufficient debt upon disposal of all collateral assets of a client, or to process collateral assets due to loss of liquidity and deep depreciation, or cancellation of listing, while the client fails to provide additional collateral assets. In order to mitigate such credit risk, SSI employs a series of coordinated measures, as follows: 
 
Establish a prudent collateral portfolio based on compliance with regulations by the State Securities Commission of Vietnam. At the same time, rate stocks in consideration of liquidity, price fluctuations and stock valuation based on the corresponding company's financial and operation analysis report. Based on stock rating, the Company will set lending rates and limits consistent with stock quality.
 
The portfolio of collateral assets is revalued monthly to mark to market fluctuation of the stocks. At the same time, individual cases are evaluated as soon as relevant negative news incurs. 
 
Develop a cross-cut limit system to control concentration of outstanding lending balance as well as alert levels for timely recovery of debts: 
 
Total volume limit for margin lending, 
 
Maximum limit per client, 
 
Maximum limit per stock, 
 
Safety warning level, 
 
Forced sell warning level, etc. 
 
Monitor the outstanding balance, concentration of outstanding balance by client, stock and daily risk exposure to timely risk detection. For instance, outstanding balance with high concentration on a specific client or a specific stock, stocks with abnormal price volatility, stocks with unusual news, stocks with abnormal and suspicious transaction movements in trading session, etc. 
 
Rate and appraise margin lending clients to ensure SSI’s criteria and regulations. Increase Broker’s client management responsibility with regards to warning communication and loan recovery, etc. 
 
Refrain from competing for market share and outstanding lending balance through over-extending margin lending services 
 
In 2018, the market witnessed considerable fluctuations. However, with the strategy of diversifying the portfolio of client margin lending, increasing the lending of leading and highly liquid stocks, the company's margin outstanding balance grew from an average of over VND 4,154 billion in 2017 to an average of more than VND 5,633 billion in 2018, with the highest balance reached over VND 7,043 billion; However, related risks remained within the limits approved by the Board of Directors without any bad debt. 
 
Investments in Bonds
 
Investment in bonds is exposed to the risk of bond issuers losing their liquidity at the bond’s maturity, or the risk of unexpected adversities leading to the bond losing its liquidity. In order to mitigate these risks, SSI has in place an assessment procedure to examine all details and aspects of a bond investment proposal, similar to a credit assessment prior to investment. SSI assessed very carefully, and only invested in bonds issued by reputable issuers with sufficient collateral assets.
 
In the context of low interest rate level in the first half of 2018, Government Bond yields also became less attractive. Meanwhile, the interest rate risk in the market still existed due to the impact of the US Federal Reserve's rate hike plan and exchange rate instability from the risk of US-China trade war.  Therefore, to limit interest rate risk and credit risk for bond investment activities in 2018, SSI had mainly focused on floating bonds issued by banks with high credit rating (state commercial joint stock banks and large private commercial joint stock banks).