Securities Firms with 1 Trillion Won Quarterly Net Profit Shake Up the Financial Sector... Nervous Financial Holding Companies Say "The Race for No. 1 Is Changing"

Securities Firms Lead with Brokerage and IMA, Surpassing Banks in Profitability

“Growth Limited with Banks Alone”... Rising Sense of Crisis Among Financial Holding Companies

Expanding Risk in Securities Divisions to Strengthen Capital Market

Domestic securities firms are rapidly catching up with banks in terms of performance, reshaping the landscape of the financial sector by leveraging the stock market boom. While bank-centered financial holding companies are seeing stagnant growth due to their limited profit structure focused on lending, financial groups with securities firms as their core subsidiaries are scaling up through a surge in brokerage revenues driven by the stock market boom and capital expansion via Comprehensive Investment Accounts (IMA) sales. As a result, some financial holding companies are prioritizing the enhancement of their non-banking competitiveness, for example, by increasing the risk-weighted asset (RWA) limits for their securities subsidiaries.

According to the financial sector on May 13, Mirae Asset Securities achieved a consolidated net profit of 1.019 trillion won in the first quarter of this year, becoming the first in the industry to usher in the "1 trillion won quarterly net profit era." This figure surpasses not only Woori Financial Group (603.8 billion won), which relies heavily on bank profits, but also NH Nonghyup Financial Group (868.8 billion won). With global investment banks raising their KOSPI index targets to as high as 10,000 points, the strong performance streak of major domestic securities firms is expected to continue for the time being. As a result, there are even projections that some securities firms' annual profits could surpass those of commercial banks this year.

This reversal trend has been evident since last year. Korea Investment & Securities posted an annual net profit of 2.0135 trillion won last year, overtaking NH Nonghyup Bank (1.814 trillion won), a key subsidiary of one of the five major financial groups. The gap with Woori Bank (2.6066 trillion won) was also narrow.

Just two years ago, the difference in scale between the two sectors was significant. As of 2024, Mirae Asset Securities and Korea Investment & Securities recorded annual net profits of 893.6 billion won and 1.1 trillion won, respectively. In contrast, during the same period, Woori Bank's net profit reached 3.0394 trillion won—more than double that of the major securities firms—and NH Nonghyup Bank posted a net profit of 1.807 trillion won. Considering that Korea Financial Group’s total net profit (1.033 trillion won) did not even match the earnings of a single commercial bank at the time, the turnaround is striking.

Banks are inherently structured to depend on interest income. However, since the inauguration of the Lee Jaemyung administration, the ongoing tightening of lending regulations and changes in the interest rate environment have clearly exposed growth limitations. In contrast, securities firm-centered financial groups have benefited from a sharp increase in brokerage income, a money move (capital flows) into the stock market, and expectations for expanding IMAs and issued notes, creating a more favorable growth environment than banks. In particular, the IMA, known as the "securities firm’s version of a deposit account," is a powerful growth engine. Korea Financial Group has already launched up to the fourth IMA product, with cumulative funding from the first three totaling 2.1 trillion won. An official at a commercial bank remarked, "The introduction of IMAs gave securities firms wings. The biggest threat is that they can stably secure customer funds and use them for large-scale investments and operations."

As a result, bank-centered financial holding companies are feeling a significant sense of crisis. Yang Jonghee, Chairman of KB Financial Group, reportedly expressed concern over the rise of securities holding companies, specifically mentioning Mirae Asset Securities and Korea Investment & Securities at a recent executive meeting. As the financial market is being reorganized into a system of securities holding companies (Korea Investment & Mirae Asset), chaebol holding companies (Samsung & Hanwha), and the five major financial holding companies, there is a growing awareness that the traditional bank-centered holding company model has its limits. This signals not only a competition in performance among financial holding companies, but also the need to respond to a shift towards a capital market-centered paradigm. A senior KB Financial executive stated, "The rapid expansion of AUM (assets under management) by Mirae Asset Securities and Korea Investment & Securities is seen as the biggest threat factor."

However, it is not easy for securities firms under financial holding companies to replicate the aggressive investment strategies of Mirae Asset Securities. The holding company structure is inherently less favorable for risk allocation than securities firm-centered holding companies. Pure-play securities firms like Korea Investment & Mirae Asset can concentrate capital and risk on the securities business, but financial holding companies like Shinhan and KB must allocate RWA limits across various subsidiaries, including banks, credit card companies, capital companies, and insurers. This makes it difficult to focus resources on a single sector as pure-play securities firms do.

Nonetheless, signs of change are emerging. The need for a group-wide capital allocation strategy shift is being recognized amid the expansion of the capital market and the strengthening of productive finance. KB Financial Group is considering ways to expand the allocation of RWAs, which were previously concentrated in banks, to the securities division. However, the company explained that due to volatility in exchange rates and asset growth rates, it has not yet set specific targets.

Shinhan Financial Group is experiencing a similar trend. A senior official at Shinhan Financial Group stated, "Recently, there is a growing movement within the group to foster the securities business as a core pillar of the capital market, rather than just a supporting function for banks. As a result, there are moves to gradually increase both the targets and risk allocation for the securities division."

The environment, in which financial holding companies cannot help but be mindful of regulatory oversight, is also a factor restricting active management moves. Securities firms under financial holding companies must be more cautious with high-risk investments due to the burden of supervision, whereas holding companies with securities as their main subsidiaries are relatively free from such regulatory and reputational pressures.

A senior executive at a financial holding company commented, "If a bank-centered financial holding company were to actively support private equity funds such as MBK, back management control disputes, or engage in high-risk restructuring finance, regulatory authorities could face social criticism and regulatory pressure questioning why a public-oriented bank group is acting so aggressively."

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