Financial firms profit plummets 55%

Korean financial firms’ profitability worsened considerably in 2012, data showed yesterday, as the country lapsed into a period of stagnant growth amid lower interest rates.

The average return on equity (ROE) for brokerage houses came to 1.9 percent in the April-December period of fiscal 2012, down 3.8 percentage points from the end of 2011, according to the data by the Financial Supervisory Service (FSS).

The ROE, a key barometer of a firm’s efficiency at generating profits, measures net income as a percentage of shareholders’ equity.

The country’s securities firms saw their net profit reach 787.7 billion won ($725.9 million) over the cited period, down 55 percent from a year earlier, the data added.

Korean banks’ ROE also reached 6.4 percent in the April-December period, falling 2 percentage points from the end of 2011, the data showed. Their net income decreased 23.2 percent year-on-year to reach 9 trillion won.

Local life and non-life insurers also saw their ROE move down 3.5 percentage points and 0.6 percentage point on-year in 2011, compared to 11.6 percent and 14.7 percent reported a year earlier.

Market watchers said financial firms’ ROE fell sharply as Korea slipped into a low-growth stage, while return on asset management also decreased on the low interest rates.

“The protracted global economic slowdown and the low key interest rates will continue to deal a harsh blow to local financial firms down the road,” said Jeon Hyo-chan, an economist at the Samsung Economic Research Institute.

Lee Jieon, a researcher at the Korea Institute of Finance, echoed the view, adding that local banks will also have limited leeway in making loans to small and medium enterprises, which could further eat into the country’s economy.

Meanwhile, the size of assets held by Korean brokerage houses soared nearly two-fold last year from 2008 despite the falling profitability, due mainly to a rise in paid-in capital, separate FSS data showed.

Major securities firms sold their new shares to the public to increase their capital, as the revised bill pending in the National Assembly stipulates a brokerage house must hold an equity capital worth at least 3 trillion won to achieve the status as an investment bank. Yonhap