Last Year's Securities Industry Net Profit 4.9 Trillion Won... 'Record High Performance'

[Asia Economy Reporter Ji-hwan Park] Last year, domestic securities firms recorded the highest annual net profit in history. This was thanks to increased earnings from fund-related profits and the investment banking (IB) sector.

On the 16th, the Financial Supervisory Service (FSS) announced the '2019 Securities and Futures Companies Business Performance' (provisional), reporting that the net profit of 56 securities companies reached 4.9104 trillion KRW, a 17.8% increase from 4.1736 trillion KRW the previous year. This surpassed the previous record of 4.4299 trillion KRW set in 2007. The average return on equity (ROE) was 8.3%, up 0.6 percentage points from 7.7% the previous year.

Looking at revenue by category, commission income, the traditional revenue source for securities firms, decreased by 2.3% to 9.4902 trillion KRW. Within commission income, the IB sector accounted for 36.0%, and asset management accounted for 11.1%. Notably, the proportion of custody fees has gradually declined compared to the past, accounting for 36.5%, down from 69.2% in 2009, 60.7% in 2012, 57.9% in 2015, and 46.8% in 2018.

Proprietary trading profits, which securities firms earn by trading stocks, bonds, and derivatives, amounted to 3.6796 trillion KRW, down 18.5% from the previous year. Although stock valuation gains and bond-related profits increased by 631.6 billion KRW and 560.8 billion KRW respectively compared to the previous year, derivative-related losses also increased by 1.9456 trillion KRW.

An FSS official explained, "The issuance and redemption amounts of derivative-linked securities such as ELS increased compared to the previous year, leading to a significant rise in related losses."

The total assets of the 56 securities firms reached 482.6 trillion KRW, a 10.0% increase from 438.7 trillion KRW at the end of the previous year. Holdings of securities such as stocks, bonds, and funds increased by 15.8%, contributing to the growth in asset size compared to the previous year. Total liabilities rose by 10.1% to 420.8 trillion KRW. This was influenced by a 12.8% increase in funding through repurchase agreements (RP) and a 115.0% increase in issuance of commercial papers by mega IBs. The total equity capital of all securities firms increased by 9.2% to 61.8 trillion KRW.

The net profit of five futures companies last year was 26.1 billion KRW, a 12.2% increase from the previous year. This was due to a 4.6 billion KRW increase in custody fees compared to the previous year.

An FSS official stated, "Despite a decrease in stock trading volume last year, securities firms' net profit increased compared to the previous year due to the expansion of the IB sector and the interest rate cut trend. While the proportion of custody fees in commission income has continuously decreased compared to the past, the diversification effect of earnings from the IB and asset management sectors has appeared."

The FSS plans to monitor the impact of domestic and international potential risk factors such as interest rates and the stock market on profitability and soundness. It will also strengthen ongoing inspections of real estate financing, including project financing (PF) loans.

This content was produced with the assistance of AI translation services.