2Q Securities Firms' Net Profit Plummets 73%... "Impact of Reduced Proprietary Trading Gains and CFD Receivables Allowance"

Financial Supervisory Service, Yeouido, Seoul. Photo by Jinhyung Kang aymsdream@

In the second quarter of this year, the net profit of domestic securities firms in South Korea sharply declined by nearly 73% compared to the previous quarter.

According to the Financial Supervisory Service on the 27th, the net profit of 60 domestic securities firms in the second quarter was 1.0473 trillion KRW, a decrease of 2.82 trillion KRW (72.9%) from the previous quarter. The cumulative return on equity (ROE) for the second quarter was 4.1%, similar to 4.2% in the same period last year.

Looking at the profit and loss status by major items, commission income in the second quarter was 3.2517 trillion KRW, an increase of 17.1% from the previous quarter. Custody fees were 1.4908 trillion KRW, up 9.8% due to an increase in stock trading volume. Investment banking (IB) division fees were 976.1 billion KRW, up 28.7% due to increased fees related to debt guarantees, and asset management division fees were 289.4 billion KRW, up 7.8% due to increased discretionary investment fees.

Proprietary trading gains were 1.9769 trillion KRW, down 38.7% from the previous quarter. Although derivative-related gains increased due to a decrease in the valuation amount (liabilities) of equity-linked securities (ELS) caused by the decline of the Hong Kong H-Index, bond-related gains decreased due to rising interest rates, and fund-related gains declined due to overseas alternative investment defaults.

Other asset gains were 834 billion KRW, down 1.1% from the previous quarter due to a decrease in foreign exchange transaction gains, and other gains decreased by 2.3461 trillion KRW from the previous quarter due to the recognition effect of dividend income and the provision for unsettled amounts in the contract for difference (CFD) system. Selling and administrative expenses were 2.699 trillion KRW, down 6.2% due to reduced personnel costs.

As of the end of June, the total assets of securities firms were 691.7 trillion KRW, an increase of 13.8 trillion KRW (2.0%) compared to the end of March. Total liabilities were 607.7 trillion KRW, up 12.3 trillion KRW (2.1%) during the same period. Equity capital increased by 1.6 trillion KRW (1.9%) to 84.1 trillion KRW. The average net capital ratio was 731.0%, up 11.6 percentage points, and the average leverage ratio was 642.2%, up 1.8 percentage points.

The quarterly net profit of all three futures companies in the second quarter was 20 billion KRW, down 5.3 billion KRW (20.7%) from the previous quarter. The cumulative ROE up to the second quarter was 8.1%, up 4.0 percentage points compared to the same period last year.

As of the end of June, total assets were 5.1752 trillion KRW, down 375.8 billion KRW (6.8%) compared to the end of March, and total liabilities were 4.5839 trillion KRW, down 401.2 billion KRW (8.0%). Equity capital increased by 25.4 billion KRW (4.5%) to 591.3 billion KRW. Additionally, the average net capital ratio was recorded at 1217.5%, up 77.8 percentage points compared to the end of March.

The Financial Supervisory Service explained, "The net profit of securities firms in the second quarter sharply decreased compared to the previous quarter due to reduced proprietary trading gains and provisions for unsettled CFD transactions. While commission income such as custody fees continues to increase, proprietary trading gains fluctuate due to increased financial market volatility."

It added, "Considering that the economic and financial environment remains uncertain in the second half of this year due to global economic slowdown and the possibility of continued monetary tightening, we plan to closely monitor the impact of internal and external potential risk factors on the profitability and soundness of securities firms. In particular, we will encourage strengthened risk management focusing on vulnerable firms to prevent real estate project financing (PF) and overseas alternative investment defaults from transferring into liquidity risks."

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