Monday, April 21, 2014

Birth of Local Investment Banks

Era of Investment Banking Opens in Korea

1 November 2013

Local securities companies with equity capital of over three trillion won (US$2.82 billion) are now allowed to handle business loans. At the same time, the prime brokerage service, which has been limited to domestic hedge funds, is allowed for financial companies, pension funds, and overseas hedge funds. This means that a new chapter has been opened for Korean investment banks in two years since major securities companies increased their capital by issuing new stocks to meet the three trillion won equity capital requirement. 

The Financial Services Commission selected five securities firms -- KDB Daewoo Securities, Samsung Securities, Woori Investment & Securities, Korea Investment & Securities and Hyundai Securities -- on October 30 as Korea’s first investment banks. All of them have prepared themselves for the past two years, waiting for the revision on the Financial Investment Services and Capital Markets Act. They obtained the authorization for investment banking business on that day. 

They are moving nimbly to dominate the market based on organizational restructuring and their own future plans. Their focus is fixed on business loans, as the permission will result in new high-value businesses beyond simple loans for companies. 

There still remains a hurdle on the systemic side though. According to the Financial Investment Services and Capital Markets Act, credit offerings are limited to 100% of equity capital. This regulation conflicts with another one that stipulates securities firms’ net capital ratio (NCR) be at least 150%.  

“Due to the NCR restriction, it seems that IBs will be able to make use of just 500 billion to 600 billion won out of the equity capital of three trillion won or over,” said an industry insider. “The NCR regulations need to be amended to facilitate the IB’s business,” Korea Capital Market Institute researcher Lee Seok-hoon added. He continued, “I guess that the problem will be dealt with sooner or later, as the government is well aware of it.”

Categories: 

More Like This

New Capital Act
Thursday, 29 August 2013
The amendment to the Financial Investment Services and Capital Markets Act, which was proclaimed in late May this year, takes effect on August 29. It will allow securities companies with capital of...
Financial Deregulations
Monday, 14 October 2013
The government now allows foreign exchange transactions between securities companies in an attempt to lower the volatility by increasing the number of forex market participants. This measure is...
Bond Prices
Monday, 29 July 2013
Things are currently quite bad in the local stock market. The stock price index has been drifting sideways between 1,800 and 2,000 points for almost two years; causing a significant drop in trade...
News
Sunday, 15 November 2009
IT will have been 10 months as of this coming November since the Capital Markets Consolidation Act (CMCA) was enforced. Since then, the financial market has changed in many aspects, especially for...
Korean Bond-type Funds
Monday, 26 August 2013
It has been found that the money drain from bond-type funds is slowing down in spite of the possibility of a foreign exchange crisis in India and the Fed’s remarks on the end of the quantitative...
Financial Holding Company
Thursday, 05 September 2013
Keen attention is being paid to the discussion of the introduction of universal banking and discretionary investment business to the banking sector, which was about to be allowed back in 2007, as...

Copyright 2013 BusinessKorea Co., Ltd.

301 Samdo Building, 12-1 Yeoido-dong, Yeongdeungpo-gu, Seoul, Korea 150-010 | Tel: +82-2-578-3220 | Fax: +82-2-578-3224 | Email: contact@businesskorea.co.kr