Major financial firms in South Korea have seen growth in groupwide and affiliated securities house net profit during the July-September period.

South Korea saw 20 local securities houses actively issuing equity-linked securities (ELS) in the third quarter of the year led by Shinhan Securities and NH Investment & Securities, dropping from 22 issuers seen from last year’s same time, SRP data shows.

The problems of the current sales regulations should be diagnosed coolly to reflect the 'consumer protection principles' of financial companies and the 'self-reliance' of consumers -  So-young Kim, FSC

The non-principal-protected autocallables have been embedded in the mis-selling scandal earlier in the year when retail investors reported losses from the Hang Seng China Enterprises Index (HSCEI)-linked investment products. Sales volume of these ELS products tumbled 76% year-on-year to KRW4.1 trillion (US$3 billion) in the July-September period.

Financial Supervisory Service said on Tuesday (5 November) that following the HSCEI-linked ELS mis-selling investigation, it proposed a series of plans to improve sales practices.

One of the plans it laid out at Tuesday’s meeting is to ban the sale of high-difficulty financial products through banks. The regulator noted that following the derivative-linked fund (DLF) mis-selling scandal in 2019, ELS-incorporated trusts with certain conditions and mutual funds incorporating high-difficulty financial investment products were still sold.

'Although sales regulations on financial investment products have been strengthened since the DLF incident in 2019, the issue of incomplete sales is still recurring, and the problems of the current sales regulations should be diagnosed coolly to reflect the 'consumer protection principles' of financial companies and the 'self-reliance' of consumers,' So-young Kim (pictured), vice chair of the Financial Services Commission (FSC), said in the open seminar.

The FSS also proposes that high-difficulty gold products can only be sold at regional flagship stores, and a firewall between savings or time deposit counters and high-difficulty financial investment product sales channels should be established in those places.

Kim said he would comprehensively review the opinions of experts from various fields who attended the seminar and those provided through livestreaming on YouTube and reflect them in establishing final measures in the future.

The latest regulatory development came after several securities houses posted their Q3 earnings performance.

Shinhan Securities

Shinhan Financial Group, the parent company of ELS issuer Shinhan Securities, posted a group net income of KRW1.24 trillion (US$899m) in the third quarter of the year, up nearly four percent year-on-year.

While the group’s interest income for Q3 increased by three percent YoY to KRW2.85 trillion, non-interest income dropped by nine percent YoY to KRW827.8 billion as the firm attributed to derivative trading losses from Shinhan Securities and losses on overseas alternative investments. In August, the affiliated securities house was in a quagmire of scandal following an estimated loss of KRW130 billion to an exchange-traded fund futures trading.

Yet, Shinhan Securities’ net income from ELS remained robust, rising 17% year-on-year to KRW3.5 billion in Q3 2024, hitting the highest level since Q1 2023.

The latest income figure of ELS also translated into 3.2% of the share of the brokerage house’s net income from financial products sold to both retail and institutional clients in the July-September period, slightly up from 2.9% seen a year ago.

Other products such as wrap and micro debentures comprised most of the net income, recording around KRW37.7 billion in Q3 2024, followed by funds (KRW37 billion) and trust accounts (KRW31.5 billion).

In Q3 2024, SRP data registered 490 tranches of structured products issued by Shinhan Securities worth KRW2.3 trillion in sales volume. 180 tranches of which stemmed from non-principal-protected autocallables, or ELS products, gathering at around KRW728 billion in sales volume. 19 tranches have been redeemed early, with the ELS 25794 leading as the best-performing product.

The three-year autocallble with worst-of-option and knock-in barrier put features tracked a basket of US tech stocks (AMD, Amazon, and Nvidia) was early redeemed on 28 October, returning 103% (an 11.27% p.a.). Morgan Stanley was the product’s counterparty.

Kiwoom Securities

Kiwoom Securities reported a consolidated net income of KRW212 billion in Q3 2024, up 3.7% compared to Q3 2023 (KRW204 billion). Net revenue surged over nine percent YoY to KRW398 billion.

The house’s brokerage commission accounted for 44% of the revenue figure, seeing a one percent slide to KRW177 billion during the July-September period. Among, its commission revenue in over-the-counter derivatives stood at KRW2 billion in Q3 2024, down 44% compared to Q3 2023 (KRW3.6 billion).

The firm’s balance showed that it held KRW325 billion of derivatives liabilities in Q3 2024, down 20% YoY. Around 45% of which, or KRW149 billion, stemmed from FX rates-linked derivatives, down 22% YoY. Equity-linked derivatives liabilities stood around KRW142 billion, up five percent YoY.

SRP's database recorded Kiwoom Securities houses issued 202 tranches of ELS worth KRW307 billion in sales volume in the three months ended September, down 44% YoY in sales

The securities house also launched 64 principal-protected-focused equity-linked bonds (ELB) worth KRW177 billion in sales, doubling YoY in sales volume. There were also three derivative-linked bonds (DLB) issued by the house, gathering KRW11 billion in sales.

KB Securities

Another major structured product issuer KB Securities posted a net profit of KRW172 billion in the third quarter, soaring 53% compared to the prior year.

By the end of September, the securities house’s assets under wealth management reached KRW61 trillion, with more than half of which coming from bonds (KRW33.5 trillion).

ELS, derivative-linked securities (DLS), and individual savings accounts (ISA) made up KRW2.9 trillion in assets, roughly five percent of the share. Trusts contributed to one third of the asset, or KRW20.4 trillion, followed by funds (KRW4.8 trillion, nearly eight percent of the share).

The Korean securities house issued 122 ELS, 52 ELB, 21 DLS, and 15 DLB in Q3 2024, according to SRP data. Total sales volume gathered around KRW658 billion, up 23% compared to Q3 2023. DLB contributed the majority of the sales growth, which was offset by sales in ELS.

KB Financial Group, its parent company, also posted health earnings, with net profit rising 17% YoY to KRW1.6 trillion in the July-September period.

Hana Securities

Hana Financial Group released its third-quarter net profit of KRW1.16 trillion, up 20% compared to last year’s same time.

Hana Bank, the group’s biggest subsidiary, also posted a KRW1.04 trillion in net profit, up 11% YoY.

For Hana Securities, another subsidiary of the group, consolidated net profit reached KRW51 billion in Q3 2024, improving from last year’s same time when it posted a KRW48 billion loss in the profit and loss statement.

SRP data showed that Hana Securities issued more than 150 tranches of ELS and some 33 tranches of ELB during Q3 2024, with a total sales volume of KRW550 billion being collected. The house is a big issuer of DLB that has marketed some 140 tranches in the third quarter, worth around KRW1.6 trillion in sales.

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