No way for Growth

The equity capital of Mirae Asset Daewoo, the largest in South Korea, stood at 6.7 trillion won (US$6.0 billion) last year while Goldman Sachs and Morgan Stanley had an equity capital of around US$90 billion in 2015.
The equity capital of Mirae Asset Daewoo, the largest in South Korea, stood at 6.7 trillion won (US$6.0 billion) last year while Goldman Sachs and Morgan Stanley had an equity capital of around US$90 billion in 2015.

 

Large South Korean investment banks are to be launched in June this year. Still, securities companies are expressing concerns that various regulations will hinder their transformation in the end. They cannot handle private placement corporate bonds in the trust market having a total value of 741 trillion won and increasing.

The regulations also include restrictions on loans to banking account. According to current law, securities companies are the only one group of trust companies that cannot conduct temporary lending based on their own properties. Banks in South Korea, in the meantime, are aiming for a separate trust business act so that their trust business can be boosted. Trust business in the country is currently governed by the Capital Markets Act.

Two other examples of the regulations are limitations on payment and settlement regarding corporate bodies and limitations on foreign currency business. The large investment banks have the purpose of corporate financing expansion and venture capital supply. It cannot be attained at all in the presence of those regulations.

The securities companies’ discontent is deep-rooted in fact. Since the 1990s, banks in South Korea have expanded their field of business to cover funds, insurance, investment consulting, ELS, exchange-traded derivatives, etc. As of September last year, the banks accounted for 61.3% (2,603 trillion won) of the total assets in the financial industry of South Korea. Nonetheless, their ROE stood at 2.08%, much lower than those of securities companies (6.87%) and asset management firms (12.44%). These companies and firms represented 9.4% of the total assets at that time.

The banks’ assets are equivalent to 157% of South Korea’s GDP. This can be somewhat excessive in view of other countries such as the United States (86%). The South Korean securities companies working on the transformation are much smaller than well-known investment banks. Specifically, Goldman Sachs and Morgan Stanley recorded an equity capital of 102.1 trillion won 88.05 trillion won at the end of 2015, respectively. The equity capital of Mirae Asset Daewoo, the largest in South Korea, stood at 6.7 trillion won at the end of last year.

 

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