The three largest South Korean brokerages by equity capital — Mirae Asset Securities, Korea Investment Holdings and NH Investment & Securities, each with more than 8 trillion won in equity — posted markedly higher returns on equity in the second quarter than a year earlier. Return on equity measures how efficiently a brokerage converts its capital base into profit. With both their capital and profitability expanding, the three firms have been aggressively growing their comprehensive investment accounts, known as IMAs, and their promissory note businesses, setting the stage for fiercer competition in deploying the funds they raise.
Mirae Asset Securities posted an ROE of 26.89% as of the end of the second quarter, up 16.53 percentage points from 10.36% a year earlier and the largest improvement among the three, according to data from financial information provider FnGuide released on the 12th. Korea Investment Holdings' ROE rose 9.77 percentage points to 24.44% from 14.67%, while NH Investment & Securities climbed 6.97 percentage points to 16.12% from 9.15%.
Because equity capital grew more than 30% over the same period while ROE also rose, the figures point to a stronger ability to generate profit relative to capital. Mirae Asset Securities' equity capital stood at 16.2499 trillion won at the end of the second quarter, up 30.85% from 12.419 trillion won a year earlier. Korea Investment Holdings' equity rose 33.15% to 13.8129 trillion won from 10.3742 trillion won, and NH Investment & Securities' equity capital rose 33.40% to 10.0660 trillion won from 8.1457 trillion won.
The gains stand out even against other large brokerages. Samsung Securities' ROE improved 6.05 percentage points to 18.11% at the end of the second quarter from 12.06% a year earlier, while Daishin Securities' rose 5.37 percentage points to 10.91% from 5.54%. Industry officials expect the ROE gap among the three largest firms to widen further depending on how effectively each deploys its capital.
Some analysts say IMA performance could become the decisive variable for future profitability. NH Investment & Securities, the latest entrant, sought to differentiate itself last month by launching the industry's first short-term product with a maturity of under two years, at 18 months. Combined cumulative IMA issuance at the three firms reached about 4.26 trillion won as of the end of last month. An executive at one brokerage said profitability will diverge based on each firm's ability to identify quality investment targets and manage risk, at a time when corporate finance and venture capital investment are both under pressure to expand.
The outlook for third-quarter ROE, however, is mixed. With the domestic stock market stuck in a narrow range, a decline in brokerage commissions — a key revenue source — appears unavoidable, while rising market interest rates have increased the risk of weaker returns on bond holdings. Mirae Asset Securities' second-quarter ROE was lifted by a 1.6242 trillion won valuation gain on its SpaceX holdings, but some expect earnings volatility to increase in the third quarter depending on whether that position records a valuation loss. Lee Jong-hyung, head of Kiwoom Securities' research center, said trading volume has fallen sharply from the first half of the year and brokerage earnings will inevitably be affected. "The current market is less a matter of corporate fundamentals than of tangled supply and demand, so I don't expect it to be easy in the fourth quarter either," he said.