Unusual Outlook for the Securities Industry Next Year

On the 4th, dealers were working in the dealing room of Hana Bank in Euljiro, Seoul. On that day, the KOSPI index opened at 3,000.92, up 25.21 points from the previous session. The won-dollar exchange rate started at 1,178.5 won, down 3.1 won. Photo by Moon Honam munonam@

[Asia Economy Reporter Hwang Junho] It has been forecasted that the profits of domestic listed securities firms such as Samsung Securities, Mirae Asset Securities, NH Investment & Securities, Korea Investment & Securities, and Kiwoom Securities will decrease next year. As the stock market's overall upward trend has halted, brokerage commissions have declined, and with reduced trading profits and valuation gains on securities held for investment, it is expected to be difficult to achieve the strong performance seen this year.

KB Securities projected on the 6th, through its 2022 securities industry outlook, that the combined consolidated net income attributable to controlling shareholders of the five leading domestic securities firms will decrease by 21.2% from this year to 4.2951 trillion KRW next year. The combined return on equity (ROE) of these five firms is expected to fall by 5.2 percentage points compared to 2021, reaching 11.9% next year.

The profit decline is a result of reduced investor sentiment. Since the stock market has been trapped in a trading range this year, investor sentiment has contracted. This trend is expected to continue into next year. Accordingly, the average daily trading volume, which was around 27.1 trillion KRW this year, is expected to drop to about 22.6 trillion KRW next year. The decrease in trading volume leads to a reduction in commission income earned by securities firms, which is anticipated to decline by approximately 15% compared to this year. Due to the weakening momentum of the stock market, household loan regulations, and rising market interest rates, the average balance of credit loans is expected to decrease by 3.9%, and related interest income and expenses are also expected to decline by 5.9%.

Since the second quarter of this year, the issuance of ELS (Equity-Linked Securities) has significantly decreased, leading to a substantial reduction in the volume of early redemption targets next year. Additionally, factors such as base interest rate hikes are expected to worsen bond valuation gains and losses compared to this year. The stock market rise this year is expected to create a base effect on valuation gains of stock-related assets and non-marketable assets reflected in the second quarter.

The difference between consolidated and standalone profits this year surged by 51.5% year-on-year to 1.1909 trillion KRW. This was due to the inclusion of equity method gains from Korea Financial Group as well as valuation gains on investment associations and real estate securities. Next year, these non-recurring effects are expected to be removed, resulting in a stable flow around 527.8 billion KRW.

However, KB Securities researcher Kang Seung-geon stated, "IB (Investment Banking) and other fees are expected to continue their growth trend next year," adding, "The normalization of overseas IB deals, which had stagnated since 2020, is anticipated, and structured finance for domestic non-residential real estate is expected to maintain its strong performance."

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