Concerns abound over Korean brokerages’ latent risk
[THE INVESTOR] Uncertainty in the domestic real estate markets is triggering concerns that the snowballing contingency liabilities of local brokerages can become a reality.
A contingency liability refers to a lender’s potential liability that arises in case of an unanticipated future event, such as warranties with respect to products like real estate projects.
As of end-September, the contingency liabilities of Korean securities firms came to a combined 33.9 trillion won (US$30.21 billion), up 21.5 percent compared to end-2017, according to data compiled by the Financial Supervisory Service on Jan. 9. This accounted for 63.7 percent of the 44 Korean firms’ combined equity capital, rising 7.4 percentage points in nine months.
By brokerages, Meritz Securities had the highest ratio of contingency liability to equity capital, at 184.3 percent, followed by IBK Securities and Hi Investment & Securities. NH Investment & Securities, the second-largest brokerage by capital, recorded 88.2 percent, higher than the average 63.4 percent.
Nearly four out of five such potential debt are credit offerings to corporations or real estate development projects, according to a recent report by NICE Investors Service.
The government’s tighter grip on the property market to curb soaring apartment prices, coupled with a market downturn, is raising the possibility that the brokerages’ contingency liabilities could rise, added NICE Investors Service, as lenders warrant credit repayment by builders.
By Son Ji-hyoung (email@example.com)