NICE Investors Service: "Environment Favors Large Firms... Gap Between Securities Companies Becoming Entrenched"

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Nice Investors Service (NICE Investors Service) analyzed that the gap between large securities firms and small to mid-sized firms is becoming entrenched as the environment increasingly favors large companies in the securities industry.

On September 17, Lee Yeri, Senior Researcher at NICE Investors Service, explained at the "NICE Credit Seminar 2025" held at the Korea Exchange, "The introduction of Integrated Investment Accounts (IMA) and the expansion of promissory notes are providing new opportunities for large securities firms."

NICE Investors Service assessed that the current regulatory environment itself is structured to benefit large firms. Lee stated, "Financial authorities are encouraging the expansion of corporate finance, primarily focusing on large firms with significant capital," and added, "Meanwhile, small and mid-sized firms, which have historically relied heavily on real estate, are still struggling to diversify their business operations."

She further noted, "The currently announced changes to the risk value of the Net Capital Ratio (NCR) for real estate project financing (PF) and the liquidity ratio reform are also acting as burdens across the entire securities industry, including small and mid-sized firms."

She evaluated that the performance polarization by firm size in the securities industry is persisting. According to NICE Investors Service, the return on assets (ROA) for the first half of this year among the 10 largest securities firms-NH Investment & Securities, Samsung Securities, KB Securities, Korea Investment & Securities, Mirae Asset Securities, Hana Securities, Shinhan Investment & Securities, Meritz Securities, Kiwoom Securities, and Daishin Securities-was 1.6%.

In contrast, the nine mid-sized firms-Shinyoung Securities, Hanwha Investment & Securities, Kyobo Securities, Yuanta Securities, Hyundai Motor Securities, and others-recorded an ROA of only 0.9%, while the eight small-sized firms-LS Securities, Hanyang Securities, Cape Securities, and others-posted an ROA of 1.1%.

She explained, "The primary reason for this performance polarization is the differentiation in fee income due to differences in business foundations." She added, "In the first half of this year, fee income at large firms increased by 12% year-on-year, whereas mid-sized and small firms saw increases of only 7% and 4%, respectively."

She also pointed out that differentiation was evident in operating profits and losses depending on funding capabilities. She said, "Large firms have a diversified funding structure, including promissory notes, repurchase agreements (RP) sales, and equity-linked securities sales," emphasizing, "Small and mid-sized firms face structural constraints due to a high dependence on RP sales."

For these reasons, she predicted that credit rating differentiation will appear according to the size of equity capital. She stated, "Business areas exclusive to large firms continue to expand, but small and mid-sized firms face dim profit outlooks due to the need to clean up non-performing assets and tighter regulations. Changes in the business environment serve as strategic opportunities for large firms, while they weaken the business foundation for small and mid-sized firms."

She also anticipated that, considering policies encouraging scale and the direction of stock market stimulation, credit rating upgrades could be possible for some large firms. She explained, "Among large firms that meet the promissory note approval requirement of 4 trillion won in equity capital, if excellent profitability and financial stability are sustained and their standalone credit rating remains below 'AA0,' an upgrade is possible."

Lee identified Kiwoom Securities and Meritz Securities as firms meeting the criteria for a credit rating upgrade. However, she pointed out that for Kiwoom Securities, the high concentration in the brokerage business is a burden, as its business diversification lags behind other large firms. She also noted that Meritz Securities faces risks due to high dependence on project financing and unresolved risks related to Homeplus.

She concluded, "Among small and mid-sized firms, those with higher dependence on real estate project financing are showing slower performance recovery," and warned, "If capital expansion is not achieved in a timely manner, there will be downward pressure on credit ratings."