International credit rating agency Moody’s announced on July 10 that it maintained its long-term corporate credit ratings for KDB Daewoo Securities, Samsung Securities and Woori Investment & Securities at Baa2, while adjusting the credit rating forecast downward from Stable to Negative. “The negative forecast reflects ongoing heavy pressure upon the potential profitability of stock firms and concerns over the unfavorable business conditions as of late,” said Moody’s analyst Park Hyun-hee. Furthermore, the agency pointed out that the profits of companies are decreasing as their brokerage income, accounting for 30% to 40% of their net operating income, is on the decline. As a matter of fact, the daily average turnover in the Korean stock market has stood at around 6.3 trillion won since the first fiscal quarter of 2012, which is the lowest level since the 2008 global financial crisis. Their heavier exposure to interest rate risks due to an increase in the bond holding balance and the implementation of the revised Financial Investment Services and Capital Markets Act, which is scheduled to take effect on August 29, were also taken into consideration.
“Allowing for the risks inherent to the securities industry, KDB Daewoo Securities’ credit rating is unlikely to be adjusted upward in the short-term and the same forecast is applied to Samsung Securities as well,” said the agency, continuing, “Furthermore, the rating could be lowered if the before-tax margin dips below 10% for two consecutive quarters or the net capital ratio goes down below 400%.” It added that it would factor in the double leverage ratio of the KDB Financial Group and the progress of the newly allowed credit offering business in determining the credit ratings. “When it comes to Woori Investment & Securities, there is a possibility of downward adjustment on condition that the company is not acquired by a reliable financial institution during the course of its privatization,” it went on.
“The enterprise credit business entails higher risks than the brokerage business,” the analyst pointed out, adding, “As such, the risk management capabilities of brokerage houses will be tested down the road.”