With Stock Market Boom and Increased Trading Volume... Q3 Securities Firms' Net Profit Up 20%

[Asia Economy Reporter Eunmo Koo] With the stock market boom leading to a continuous increase in domestic and international stock trading volumes, securities firms' net income for the third quarter of this year rose by nearly 20% compared to the second quarter.

According to the "2020 Q3 Securities and Futures Companies Business Performance" report released by the Financial Supervisory Service on the 7th, the net income of 56 securities firms in the third quarter was tentatively estimated at 2.1687 trillion KRW, an increase of 19.3% (351.3 billion KRW) from the previous quarter. The cumulative return on equity (ROE) for the third quarter was 7.0%, up 0.4 percentage points from 6.6% in the same period last year.

The increase in commission income led the performance rise. Total commission income in the third quarter was 3.7784 trillion KRW, up 16.7% (540.6 billion KRW) from the previous quarter. Among these, custody fees increased by 22.0% (383.3 billion KRW) compared to the second quarter due to the rise in stock trading volumes, reaching 2.1219 trillion KRW.

On a cumulative basis, custody fees amounted to 5.2403 trillion KRW, a 101.0% (2.6332 trillion KRW) increase compared to the same period last year. In particular, foreign currency securities custody fee income rose by 35.6% to 172.4 billion KRW, increasing its share of custody fees to about 8.1%.

IB division fees reached 1.0091 trillion KRW, up 14.9% (131.2 billion KRW) from the second quarter. This is interpreted as underwriting commission increasing by 23.8% (51.9 billion KRW) quarter-on-quarter due to an expansion in stock issuance size from new initial public offerings (IPOs).

Additionally, proprietary trading profits in the third quarter were 1.0741 trillion KRW, a 184.5% (696.6 billion KRW) increase from the second quarter, while other asset gains decreased by 41.4% (845.2 billion KRW) to 1.2105 trillion KRW. Selling and administrative expenses rose by 5.6% (140.4 billion KRW) to 2.6341 trillion KRW.

Securities firms' equity also increased. As of the end of September, the total equity of all securities firms was 66.4 trillion KRW, up 3.1% (2 trillion KRW) compared to the previous quarter (64.4 trillion KRW).

Financial soundness also improved. The average net capital ratio of all securities firms in the third quarter was 677.3%, up 67.2 percentage points from 610.1% in the previous quarter. Conversely, the leverage ratio during the same period decreased by 21.6 percentage points to 711.0% from 732.6% in the second quarter.

Unlike securities firms, futures companies' net income in the third quarter was 7.7 billion KRW, down 24.6% (2.5 billion KRW) from 10.2 billion KRW in the second quarter. Custody fees decreased by 11.6% (4.4 billion KRW), and net income fell by 24.6% (2.5 billion KRW) in the third quarter. The cumulative ROE for the third quarter was 6.5%, up 1.1 percentage points year-on-year.

The Financial Supervisory Service stated, "Although securities firms showed solid profits in the third quarter due to the stock market boom, uncertainty remains as COVID-19 continues. We will monitor the impact of potential risk factors such as domestic and international stock markets on profitability and soundness, and continuously manage key risk factors including the possibility of deterioration in alternative investment assets such as real estate."

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