SEOUL, KOREA - Moody's Investors Service commented that the outlook for Korea's securities brokerage industry is not so bright given its cyclical and structural weaknesses. The international credit rating agency said this on February 13 and added, "For the next 12-18 months Korean brokerage firms will continue facing difficulties as their profitability suffers."

 

Sophia Lee, Moody's vice president and senior analyst, said, "The commission income that has accounted for more than 40 percent of the industry's net profit for the past five years is shrinking rapidly while even commission rate has declined. The fact that too many securities firms [62 in all] are crowded in a small market makes things more difficult." Although the incomes in the asset management and investment banking business are more stable, these are not high enough to make up for the shortfall in commission incomes.

 

As to the issue of the relaxing of the net capital ratio (the ratio between indebtedness and liquid assets) regulation, Moody's said that it may help the brokerage firms improve their profitability but may on the other hand cause further instability as the new rule allows the firms to reduce their capital base. Even in the case of a rule change that would permit the brokerage firms to expand their investment banking business, the credit rating agency pointed out, it would have a negative impact on the firms' credit ratings.