Non-bank institutions see profits plummet

For non-banking financial institutions facing the double whammy of government pressure and a stagnant economy, the news just keeps getting worse.

And it could deteriorate further for brokerage and futures firms as institutional investors move their capital to overseas stock markets in response to the lackluster performance of the local bourse.

According to the Financial Supervisory Service, the combined net profit of seven leading credit card companies was down 14.5 percent last year compared to 2011, brokerage firms saw profits cut by more than half and seven futures companies took in 70 percent less.

The credit card companies’ losses came at time of government pressure to fight the growth of household debt, which is approaching a record 960 trillion won.

For this year, the government reduced the tax benefits of credit card spending while encouraging the use of debit cards. In addition, the economic democratization movement has forced companies to lower commission rates for small and midsize businesses.

According to the Bank of Korea, daily credit card spending last year amounted to 1.5 trillion won, up 3.6 percent from a year earlier, but the lowest increase since 2.5 percent in 2009 and a sharp drop from 12.7 percent in 2008.

“Last year, consumers significantly tightened their purse strings in fear of a worsening economy,” said a central bank official.

In fact, credit card spending at department stores significantly declined from 7.3 percent growth in 2011 to 1 percent last year; spending at discount stores fell from 11 percent to 2.9 percent. And after a 16.1 percent increase in spending on gasoline in 2011, it was up only 4.2 percent last year.

During the same period, the use of debit cards rose more than 19 percent, although the total amount of purchases is only 227 billion won daily.

Brokerage firms’ net profit was the lowest since 2008 due to the weak economy, ongoing euro zone crisis, fiscal cliff controversy in the United States and slower growth in China.

Income from stock transaction commissions fell 24.5 percent year-on-year in 2012, and return on equity (ROE) was down from 1.9 percent a year ago to 0.3 percent.

For futures companies, ROE fell 5.8 percentage points from the previous year to 2.4 percent.

As futures trades shrunk, commission fees fell 17.7 percent to 197 trillion won.

Among the seven companies, Hyundai Futures and KR Futures last year posted net losses of 1.2 billion won and 4.2 billion won, respectively.

Both brokerage firms and futures companies have been bleeding customers.

Even domestic institutional investors have been increasing their investments in overseas bourses. According to the central bank, institutional investors’ foreign securities holdings grew 24 percent year-on-year to $65.2 billion in 2012.

The biggest reason was the performance of overseas markets. While Seoul’s benchmark Kospi grew 9.4 percent last year, Hong Kong and Tokyo markets grew 23 percent and China’s 15 percent. Even in the beleaguered EU, markets grew an average of 13.8 percent.

This is stark contrast to the strategy of foreign investors, who have been increasing their stock holdings in Korea.

By Lee Ho-jeong [ojlee82@joongang.co.kr]