Securities Firms Also Show Strong Performance in Q3... IB Fees Up 15.3% QoQ

Base Effect of Real Estate PF Provisions from the Previous Quarter

Yeouido Financial Supervisory Service building (right) and securities buildings in Seoul. Photo by Younghan Heo younghan@

Securities firms posted solid profits in the third quarter, following strong results in the second quarter. Loan-related gains increased significantly due to the base effect of provisions related to real estate project financing (PF).

According to the Financial Supervisory Service on the 11th, the net profit of 61 securities firms in the third quarter was 1.8102 trillion won, up 45.2 billion won (2.4%) from the previous quarter (1.7677 trillion won).

Fee income was 3.1881 trillion won, down 1.0% from the previous quarter. Fees in the IB sector increased by 15.3% due to a rise in new real estate PF transactions.

On the other hand, custody fees and proprietary trading gains from stocks and collective investment securities declined due to recent sluggish stock markets. Losses related to funds and other areas decreased by 1.1507 trillion won, mainly due to the domestic stock market downturn. Loan-related gains increased by 267.8 billion won due to the base effect of large real estate PF provisions recognized in the second quarter.

Compared to the same period last year (third quarter), the improvement in performance was remarkable. Third-quarter net profit increased by 914.3 billion won (102%) compared to the same period last year (895.9 billion won). Custody fees increased by 100 million won, IB sector fees by 140.2 billion won, and asset management fees by 21.7 billion won.

As of the end of September, the average net capital ratio of securities companies was 773.6%, up 14.6 percentage points from 759.0% at the end of June. All securities firms exceeded the regulatory ratio of 100%. For the nine comprehensive securities firms, the ratio was 1698.8%, and large firms including these stood at 1175.4%. Medium-sized and small firms recorded 388.3% and 276.9%, respectively.

The net profit of the three futures firms in the third quarter was 18.7 billion won, down 3.9 billion won (17.3%) from 22.6 billion won in the previous quarter.

The Financial Supervisory Service stated, "There is concern that potential risks in some vulnerable sectors may spread due to recent increased financial market volatility and the cumulative effects of high interest rates," adding, "We will closely monitor the profitability and soundness of securities firms and others."

It also said, "We plan to guide firms to strengthen their preemptive loss absorption capacity for high-risk exposures and actively manage non-performing assets."