Korean Brokerages Post Strong Q1 Profits Despite Real Estate Risks

Major Korean securities firms reported a 12.7% increase in net profit to 1.4 trillion won in Q1 2024, driven by growth in brokerage services and foreign currency trading. However, the industry faces potential losses from non-performing real estate project financing, prompting financial authorities to introduce stricter measures.

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Korean Brokerages Post Strong Q1 Profits Despite Real Estate Risks

Korean Brokerages Post Strong Q1 Profits Despite Real Estate Risks

Major Korean securities firms, including Mirae Asset Securities and Korea Investment & Securities, reported a combined net profit of 1.4 trillion won ($1.02 billion) in the first quarter of 2024, a 12.7% increase compared to the same period last year. The strong performance was driven by growth in brokerage services and foreign currency trading, despite potential risks from non-performing real estate project financing.

The improved earnings were largely attributed to a rebound in the stock market following the government's announcement of the Corporate Value-up Program, which boosted brokerage services. An increase in the volume of foreign currency trading also contributed to the positive results.

Why this matters: The financial health of major Korean brokerages has a ripple effect on the overall economy, influencing investor confidence and market stability. As the industry navigates potential losses from non-performing real estate project financing, its resilience will be crucial in maintaining economic growth and stability.

Among the top performers, Korea Investment & Securities recorded a net income of 368.7 billion won, a 40.7% increase from the previous year, marking its highest-ever quarterly earnings. NH Investment & Securities also saw substantial growth, with its first-quarter net income rising 22.4% to 225.5 billion won, its best performance in 11 quarters.

However, the industry faces potential losses stemming from non-performing real estate project financing (PF). As financial authorities intensify efforts to restructure real estate PF, securities firms may be required to set aside additional reserve provisions and absorb valuation losses. Korea Investors Service estimates that potential losses related to PF risks at 26 securities firms could range from 4.6 to 7.6 trillion won.

To address these risks, financial authorities are set to announce measures aimed at refining the viability assessment criteria for PF projects and strengthening the quorum requirements for maturity extensions. Park Se-woong, a Samsung Securities researcher, stated, "Financial authorities intend to implement stricter measures... to encourage the auctioning and restructuring of non-performing projects."

The strong first-quarter performance of Korean brokerages, led by Korea Investment & Securities and NH Investment & Securities, underscores the sector's resilience amid challenges posed by non-performing real estate project financing. As financial authorities prepare to introduce measures to mitigate these risks, the industry remains focused on maintaining growth and profitability in the face of potential headwinds.

Key Takeaways

  • Korean securities firms report 12.7% increase in Q1 net profit to 1.4 trillion won.
  • Strong performance driven by growth in brokerage services and foreign currency trading.
  • Korea Investment & Securities records highest-ever quarterly earnings at 368.7 billion won.
  • Industry faces potential losses from non-performing real estate project financing, estimated at 4.6-7.6 trillion won.
  • Financial authorities to introduce stricter measures to mitigate PF risks and encourage restructuring.