Securities Firms' Q2 Net Profit Hits 1.8173 Trillion KRW... Up 248% QoQ Due to Increased Stock Trading Volume

H1 Consignment Fees Up 74% YoY
Bond Valuation Gains Effective Due to Interest Rate Decline

[Asia Economy Reporter Minji Lee] In the second quarter of this year, securities firms' net profit surged to 1.8173 trillion KRW, a significant increase compared to the previous quarter. This is attributed to the rise in stock trading commission fees and bond valuation gains.

According to the '2020 Q2 Securities and Futures Companies Business Performance' report released by the Financial Supervisory Service on the 1st, the net profit of 56 domestic securities firms in the second quarter was analyzed to be 1.8173 trillion KRW, up 248.5% (1.2958 trillion KRW) from the previous quarter (521.5 billion KRW).

In the first quarter, net profit sharply declined due to losses in proprietary trading and other assets caused by the impact of the novel coronavirus disease (COVID-19), but profits appear to have increased as stock trading became more active.

Looking at major items, commission fees from stock trading increased significantly compared to the previous quarter due to the rise in stock trading volume. In the first quarter, commission fees amounted to 1.7386 trillion KRW, a 26% increase from the previous quarter. Particularly, the half-year commission fees reached 3.1184 trillion KRW, up 74% (1.3324 trillion KRW) compared to the first half of the previous year. The trading volume in the KOSPI market for the first half of the year recorded 1,171.4 trillion KRW, an 89% increase year-on-year, while the KOSDAQ market saw a 110% increase to 1,061.1 trillion KRW. Accordingly, the proportion of commission fees from stock trading within total commission income rose by 3.7 percentage points to 53.7%.

On the other hand, investment banking (IB) fees decreased compared to the previous quarter. Fees related to debt guarantees fell by 13.7% from the previous quarter, resulting in total IB fees declining by 3% to 877.9 billion KRW. Consequently, total commission income increased by 262.5 billion KRW (8.8%) from the previous quarter to 3.2378 trillion KRW.

Proprietary trading gains were 377.5 billion KRW, down 65% (701.2 billion KRW) from the previous quarter. Specifically, stock-related losses amounted to -642.6 billion KRW due to valuation losses on sold securities stocks. Derivative-related losses also recorded -1.2231 trillion KRW. Conversely, bond-related gains were 2.2523 trillion KRW, up 37% (610.6 billion KRW) from the previous quarter. This reflects the significant increase in bond valuation gains (602.4 billion KRW) due to the declining interest rate trend. Other asset gains amounted to 2.0557 trillion KRW, a 332.9% increase from the previous quarter. Selling and administrative expenses were 2.4939 trillion KRW, up 14.7% (319.4 billion KRW) during the same period.

In the second quarter, securities firms saw increases in assets, liabilities, and capital. Total assets of securities firms reached 593.2 trillion KRW, and total liabilities were 52.88 trillion KRW, up 2.6% and 2.4% respectively from the previous quarter. Assets increased overall, including cash and deposits, stocks, and bonds. Liabilities grew due to increased funding through repurchase agreement (RP) sales and an increase in sold derivative-linked securities. Shareholders' equity was 64.4 trillion KRW, down 4.5% (2.8 trillion KRW) from the previous quarter.

The financial soundness of securities firms strengthened compared to the previous quarter. The average net capital ratio in the first quarter was 607.6%, up 60.9 percentage points from 546.7% at the end of the previous quarter. Among large firms, the net capital ratio of trust companies (8 firms) rose by 149 percentage points year-on-year to 1,313%, indicating an improvement in securities firms' net capital ratios.

The average leverage ratio of securities firms in the second quarter was 732.7%, up 8.4 percentage points from 741.1% at the end of the previous quarter. Due to aggressive funding activities such as RP sales and issuance of derivative-linked securities by large firms, the leverage ratio of large firms (797%) was higher than that of medium-sized firms (512.2%) and small firms (210.9%).

A Financial Supervisory Service official stated, “Securities companies posted favorable earnings with net profit increasing by 1.3 trillion KRW compared to the previous quarter,” adding, “Given the ongoing domestic and international uncertainties including the impact of COVID-19, we plan to closely monitor how potential internal and external risks affect earnings and financial soundness.”

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