Securities Firms' Q2 Net Profit Hits 2.3 Trillion Won...Record-Breaking Streak 'Pauses'

[Asia Economy Reporter Park Jihwan] The net profit earned by securities firms in the second quarter of this year amounted to 2.3172 trillion KRW, marking a decline of more than 22% compared to the first quarter, causing the streak of record-high net profits to slow down.

The Financial Supervisory Service (FSS) announced on the 2nd that the net profit of 58 securities firms in the second quarter was 2.3172 trillion KRW, down 677.1 billion KRW (22.6%) from the record high of 2.9943 trillion KRW in the first quarter. The cumulative return on equity (ROE) of securities firms in the second quarter was 7.5% (annualized 15.0%), up 3.8 percentage points from the same period last year.

The FSS explained, "Unlike the first quarter, the stagnation in the stock market led to a decrease in trading volume and custody fees, resulting in a reduction in securities firms' net profit." Despite years of efforts to diversify operations, custody fees still account for a large portion, indicating the need for new revenue sources to reduce market dependency.

In the second quarter, custody fee revenue of securities firms was 4.1521 trillion KRW, down 8.7% from the previous quarter. By segment, custody fees from the Korea Stock Exchange market (1.0746 trillion KRW) decreased by 17.6%, and custody fees from foreign currency securities such as overseas stocks (174.7 billion KRW) also dropped by 38.0%.

This was influenced by the trading volume on the Korea Stock Exchange falling from 1,183 trillion KRW in the first quarter to 838 trillion KRW in the second quarter, a 29.2% decrease, and the settlement amount of foreign currency securities plunging from 157.6 billion USD to 103.6 billion USD, a 34.3% drop during the same period.

Fees from the Investment Banking (IB) division (1.2778 trillion KRW) and asset management division (332.5 billion KRW) increased by 5.8% and 0.2%, respectively.

The proprietary trading profit and loss (8.974 billion KRW), earned by securities firms trading stocks, bonds, derivatives, etc., with their own capital, also decreased by 17.2% compared to the previous quarter. Other asset gains (1.5648 trillion KRW) increased by 0.2%.

Sales and administrative expenses incurred by securities firms in the second quarter totaled 3.108 trillion KRW, up 0.8% from the first quarter.

As of the end of June, the total assets of all securities companies stood at 629.7 trillion KRW, up 1.7% from the end of March. During the same period, total liabilities (556.1 trillion KRW) increased by 1.2%.

The equity capital of securities firms rose by 5.7% from the previous quarter to 73.6 trillion KRW. The average net capital ratio increased by 25.1 percentage points to 746.6%.

The average leverage ratio of all securities companies in the second quarter was 658.1%, down 27.5 percentage points from three months earlier.

Meanwhile, the net profit of four futures companies in the first quarter was 9.1 billion KRW, down 18% from the previous quarter. The return on equity (ROE) was 1.8% (annualized 7.3%), down 0.4 percentage points from the same period last year.

The FSS stated, "With the continued rise in long-term government bond yields, there is a possibility of deteriorating profitability in various sectors such as bond management and project financing (PF) loans," adding, "Given the ongoing uncertainties both domestically and internationally, including the US interest rate hikes and COVID-19 in the second half of the year, we will closely monitor the impact of potential domestic and foreign risk factors, such as the stock markets, on the profitability and soundness of securities firms."

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