Nashinpyung "Major Securities Firms Maintain Ratings... Overseas Real Estate and Contingent Liability Risks Persist"

[Asia Economy Reporter Minji Lee] NICE Credit Rating has maintained the credit ratings of major domestic securities firms, considering their financial structure improvement plans and efforts to strengthen liquidity. However, it forecasted that if the impact of COVID-19 persists, exposures to overseas real estate, contingent liabilities, and derivative-linked securities could increase the credit risk of securities firms.

According to NICE Credit Rating's regular evaluation of corporate bond credit ratings on the 20th, the long-term credit ratings of seven companies, including Mirae Asset Daewoo (AA), NH Investment & Securities (AA+), Korea Investment & Securities (AA), Samsung Securities (AA+), KB Securities (AA+), Hana Financial Investment (AA), and Meritz Securities (AA-), were maintained.

Major domestic securities firms suffered significant losses in their managed assets as both domestic and international stock indices fell together and oil prices plummeted due to COVID-19. In particular, many securities firms operating their own hedges related to the issuance of derivative-linked securities faced a situation where short-term interest rates and exchange rates surged during the process of raising liquidity and exchanging dollars to pay large margin calls.

Kim Ki-pil, Head of Financial Evaluation Division 1 at NICE Credit Rating, stated, “Major securities firms significantly expanded their liquidity assets by increasing short-term funds to respond to the sharply increased liquidity demand. Nevertheless, financial stability was not severely damaged due to the firms’ own efforts and the active market intervention by the government centered on the Bank of Korea.”

However, since the business environment deterioration caused by COVID-19 may worsen further in the future, active responses are expected to be necessary. Given that major domestic securities firms have pursued aggressive risk-taking strategies based on expanded equity capital, close monitoring is deemed necessary.

Kim Ki-pil added, “Exposures to derivative-linked securities, contingent liabilities, and overseas alternative investments will increase the credit risk of major securities firms if the impact of COVID-19 continues. In the second half of the year, the implementation level of each securities firm’s risk management strategies and liquidity enhancement measures will be important factors in rating decisions.”

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