Securities Firms' 1Q Net Profit Up 58% QoQ... Down 31% YoY

[Asia Economy Reporter Lee Jung-yoon] The net profit of domestic securities firms in the first quarter of this year increased by nearly 60% compared to the previous quarter. However, it decreased by more than 30% compared to the same period last year, raising concerns that the profit scale may decline in the future.

On the 12th, the Financial Supervisory Service announced the '2022 Q1 Securities and Futures Companies Business Performance (Provisional)' and reported that the net profit of 58 securities companies in the first quarter of this year was 2.0596 trillion KRW, an increase of 58.3% compared to 1.3014 trillion KRW in the previous quarter. Compared to the previous quarter, the net profit of securities firms increased, but it decreased by 31.2% compared to 2.9946 trillion KRW in the same period last year. The average return on equity (ROE) was 2.7%, down 1.8 percentage points from 4.5% in the same period last year.

Looking at revenue by item, commission income increased by 1.1% compared to the previous quarter. Custody fees were 1.4597 trillion KRW, down 13.3% from the previous quarter. Due to a decrease in stock trading volume, custody fees for listed stocks, KOSDAQ, and foreign currency securities all declined.

IB division commissions were 1.5696 trillion KRW, up 18% from the previous quarter, but asset management commissions decreased by 4.3% to 324.2 billion KRW.

Proprietary trading profits, which securities firms earn by trading stocks, bonds, and derivatives, increased by 59.3% to 1.8519 trillion KRW. Stock-related and bond-related profits decreased by 376.5 billion KRW and 563.3 billion KRW respectively compared to the previous quarter. On the other hand, derivative-related gains increased by 222.6 billion KRW.

The total assets of all securities firms in the first quarter of this year were 659.3 trillion KRW, up 6.2% from the previous quarter. Total liabilities also increased by 7.1%, while equity capital remained at a similar level of 77.4 trillion KRW compared to 77.6 trillion KRW at the end of last year. The average net capital ratio of all securities companies was 707.9%, down 36.3 percentage points from the end of the previous year.

The net profit of four futures companies in the first quarter of this year was 8.69 billion KRW, up 55.7% from the previous quarter. ROE was 1.7%, down 0.6 percentage points compared to the same period last year.

The Financial Supervisory Service explained, "Due to sluggish stock markets and rising interest rates, custody fees decreased and stock and bond proprietary trading losses such as bond valuation losses declined, while derivative-related proprietary trading gains increased, resulting in net profit." However, "Concerns have been continuously raised that the profit scale may decrease in the future due to a significant decline in net profit in the first quarter compared to the same period last year and expanding market uncertainties."

It added, "Currently, uncertainties due to the Ukraine situation and global interest rate hikes persist, and volatility in domestic and foreign capital markets is expanding. We plan to closely monitor the impact of potential risk factors in capital markets on the profitability and soundness of securities firms. We will also continuously examine the expansion of high-risk asset investments by securities firms that may occur during the slowdown of profit growth."

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