Major South Korean brokerages have raised rates on one-year notes sold to retail clients above 4%, as special promotional products settle in the late 5% range and the financial regulator monitors whether competition for funds among nine issuers could erode their financial soundness.
Mirae Asset Securities (006800) raised the rate on its one-year notes for retail clients to 4.05% from 3.85% on the 19th, an increase of 20 basis points, according to the securities industry on the 20th. NH Investment & Securities (005940) lifted the rate on the same maturity to 4.05% from 3.95%, a 10-basis-point increase, on Oct. 8. Korea Investment & Securities raised its rate to 4% from 3.85%, up 15 basis points, effective Sept. 4.
All brokerages designated as comprehensive financial investment business operators with equity capital of at least 8 trillion won now offer one-year note rates in the 4% range. At Mirae Asset Securities, rates for retail and corporate clients on one-year notes had been identical at 3.85% before the revision, but the pretax yield for retail clients is now set 5 basis points above the 4% offered to corporate clients. "With the number of note issuers rising to nine, this appears to be a strategy to attract more retail money than competitors," an industry official said.
Competition in special promotions is also intensifying. Hana Securities is selling a one-year promotional note with a total sales cap of 50 billion won through Nov. 11 at a pretax yield of 5.7%. Kiwoom Securities (039490) earlier offered a three-month promotional product at a pretax yield of 5.8%, while Samsung Securities (016360) offered 5.5% on the same maturity.
Notes are financial products with maturities of up to one year that comprehensive financial investment business operators issue based on their own credit. Issuers can raise funds of up to 200% of their equity capital and deploy them in corporate finance and other areas.
Promotional products with fixed sales caps can be absorbed as marketing costs to win customers, but rate increases on standard products feed into overall funding costs as new issuance and rollovers at maturity accumulate. Unless returns on deployed funds rise accordingly, margins for brokerages shrink. If firms increase investment in high-yield assets to cover higher funding costs, the burden of credit risk management also grows. That is why analysts say brokerages need pre-emptive liquidity management at a time when retail demand for notes is rising amid greater stock market volatility.
The Financial Supervisory Service has begun monitoring the market, including a review of why some brokerages launched high-rate promotional products. The FSS has previously flagged maturity mismatch risk stemming from short-term funding and corporate finance-oriented deployment, saying it would guide firms on conducting their own stress tests and establishing and operating contingency funding plans.