Korean securities firms’ 2018 net profit surges 9.6% on-year on strong commission earnings

South Korea’s securities brokerage companies saw their net profit grow 9.6 percent on-year to 4.17 trillion won ($3.7 billion) last year, on the back of strong commission fees from facilitating trades, the Financial Supervisory Service said Tuesday.

According to the FSS’ earnings review of Korea’s 56 securities companies, their combined net profit in 2018 is the highest since a combined net profit of 4.43 trillion won logged in 2007. The firms’ return on equity, a measure of financial profitability, for 2018 stood at 7.7 percent, up 0.1 percentage points from the previous year. 

By category, commission fees collected from investment banking, assets management and third-party stock trades -- the traditional vehicle of profits for brokerage companies -- contributed the most to the companies’ robust earnings last year. The commission fees combined came to 9.71 trillion won, up 15.4 percent on-year.

Profits earned through proprietary trading -- whereby securities companies reap profit by directly trading stocks, bonds and derivatives -- reached 4.53 trillion won, increasing by 3.5 billion won from the previous year.

Of this, profits from stocks came to 13.5 billion won in 2018, down 102.2 percent on-year due to a sluggish stock market performance last year. Profits from derivatives also fell 285.5 percent on-year to 1.64 trillion won last year, due to a stock market slump in the fourth quarter.

However, profits from bond trades reached 6.19 trillion won, growing 105.3 percent on-year, as low interest rates enabled the firms to reap generous returns, according to the FSS.

Meanwhile, the value of the 56 securities firms’ net assets rose 12.5 percent on-year to 439 trillion won last year. Their cash and deposit reserves grew 21.7 percent, while corporate promissory note holdings grew 63.4 percent.

The securities firms’ total debt also grew 13.2 percent on-year to 382.4 trillion won last year. Their equity capital rose 8.2 percent on-year to 56.6 trillion won in 2018.

“The securities firms’ net profit retained an upward momentum due to a strong stock market performance in the first half of 2018. But the latter half saw losses, due to an interest rate hike and a sluggish stock market due to global uncertainties such as the US-China trade war,” the FSS said in a statement.

“While these uncertainties may be alleviated with progress in US-China trade talks and the speed of the US fed’s interest rate changes, the uncertainties caused by global risks are expected to worsen,” it said.

By Sohn Ji-young (jys@heraldcorp.com)