Hindered by Regulations
Mega investment banks in South Korea celebrate their second anniversary next month but their business performance is still short of expectations. This is because various regulations are hindering their business as well as approvals.
Their issued note balance, which constitutes their main business, totaled approximately 11 trillion won as of Oct. 23. The estimate for the end of this year is 11 trillion won and the current total is much below previous expectations. Two years ago, the balance was expected to reach 32 trillion won in 2020.
The Financial Services Commission announced in August 2016 that five securities companies with an equity capital of at least four trillion won, that is, Mirae Asset Daewoo, NH Investment & Securities, Samsung Securities, Korea Investment & Securities, and KB Securities, would attract funds equivalent to at least 200 percent of their equity capital by issuing notes and spend at least half of the funds for corporate financing purposes.
The actual records, however, are far below the target figures. Mirae Asset Daewoo and Samsung Securities have issued no notes since then and the other three’s balance stands at 11 trillion won or so. Specifically, the balances of Korea Investment & Securities, NH Investment & Securities, and KB Securities added up to 6.2 trillion won, about 3.5 trillion won, and 1.35 trillion won as of the end of September this year, respectively.
Mirae Asset Daewoo and Samsung Securities have yet to obtain an approval. When it comes to the former, which has the largest equity capital among the five, the Korea Fair Trade Commission’s investigations are still ongoing regarding suspicions on internal transactions. The latter’s business was suspended last year due to a dividend payment error and its approval is likely only after the business suspension ends in 2021.
Shinhan Investment, in the meantime, decided in July this year to carry out a paid-in capital increase of 660 billion won and apply for designation on Nov. 14. The six companies including Shinhan Investment have a total capital of approximately 31 trillion won and the maximum financing via note issuance is estimated at 60 trillion won.
The securities industry’s view of note issuance itself is more pessimistic than before though. This is because profitable investment destinations are hard to find due to low interest rates. Although the South Korean government is asking for more investment in innovative companies for venture capital growth, it is a tall order in view of mounting external and internal uncertainties.