Cap on property investments may rise
The Financial Services Commission (FSC) says it might consider raising the cap on real estate investment by securities companies.
This follows months of complaints from brokerages that the regulator’s proposed policy promoting investment banks is still too restrictive.
Although nothing has been decided, the regulator could move to allow securities companies to invest up to 30 percent of the money they raised via commercial paper in real estate, from a proposed 10 percent.
A FSC official said Friday that it could look into it “within a reasonable level that would not affect the market.”
The brokerage industry has argued that the regulatory cap on investment in real estate and corporate bonds would hinder securities companies from earning higher returns.
Given that bonds can only pay about 2 percent on returns and commercial banks mostly provide corporate loans, the securities industry argued for further deregulation on real estate investments.
However, there were concerns that real estate is already too vulnerable amid increasing debt, especially from households.
The regulator last year introduced a policy to enable securities companies with equity capital of more than 4 trillion won to issue short-term commercial paper to raise funds and invest in corporate bonds and real estate. They also can lend to companies.
Brokerages such as NH Investment & Securities, KB Securities, Samsung Securities, Korea Investment & Securities and Mirae Asset Daewoo would come under the regulatory revision, which will be implemented in April.
But the brokerages will be restricted to investing no more than 50 percent of the money raised via promissory notes in corporate bonds rated below "A," or lending it to companies.
Given that conglomerates would mostly prefer to take out loans from commercial banks, securities companies are likely to provide loans to small and medium enterprises with lower credit ratings.
In addition to raising funds via commercial paper, the revision will allow brokerages with more than 8 trillion won in equity capital to launch investment management accounts (IMA) for investors and use the funds raised to extend corporate loans, like deposit accounts at banks.
Korean securities companies have been pushing to raise their equity capital since the announcement.
Brokerages such as Korea Investment & Securities, Samsung Securities and Mirae Asset Securities have been raising capital to meet the basic requirement to expand their corporate financing services beyond underwriting and issuing stocks and bonds.