Contingent liabilities in securities firms jumped 22 pct last year

Contingent liabilities in Korean securities companies jumped 22 percent in 2015 compared to a year earlier, raising worries about their financial soundness, government data showed Wednesday.

Contingent liabilities in local securities firms reached 24.226 trillion won ($20.38 billion) last year, up from 19.891 trillion won a year earlier. A contingent liability is a potential liability. It depends on a future event occurring or not occurring. For example, if a brokerage company guarantees an asset-backed commercial paper (ABCP) issued by a construction company, it has a contingent liability. If the builder goes bankrupt, the brokerage firm has to take over the guaranteed debt.

Debt guarantees by securities firms for local builders' ABCPs accounted for 75 percent of the overall contingent liabilities, according to data from the Financial Supervisory Service (FSS).

Builders with a lower credit rating usually issue ABCPs to raise funds. They seek a debt guarantee from securities companies in exchange for high commissions. Securities firms have been aggressive in the deals, despite the potential risks, as they seek new income sources, the FSS said.

"We are closely monitoring securities companies with a high contingent liability-to-equity ratio to avoid any major impact on the economy," an FSS official said. (Yonhap)