Mid-tier brokerages seek to increase liquidity

Daol Investment considers selling Thai affiliate

Amid the soaring global interest rates and faltering stock market actions, small and mid-sized local brokerage companies are focusing on increasing liquidity in preparation for market uncertainties stemming from macroeconomic changes.

According to the Financial Supervisory Service’s (FSS) electronic disclosure data, five local securities companies have increased the upper limit of their short-term loan sizes within the past month. The move is to secure more liquidity for them, as brokerage companies usually rely on short-term loans, rather than issuing corporate bonds, when they’re seeking quick liquidity.

Kiwoom Securities, a representative mid-tier brokerage focusing on retail trade investors, has decided in the past week to increase the maximum upper limit for short-term loans by 1 trillion won ($738 million) to 8.5 trillion won. The company also increased the upper limit of its issuance of commercial papers for the sake of operation stability.

Hanwha Investment & Securities also increased the upper limit on its short-term loans earlier this month to 4.42 trillion won from the previous 3.92 trillion won. Eugene Investment also followed suit by increasing its upper limit by 300 billion won to 1.25 trillion won.

Hyundai Motor Securities and BNK Investment also recently expanded their upper limits by 300 billion won and 80 billion won, respectively.

This is the first time in over two years that a series of local brokerage companies have announced their decisions to increase the maximum sizes for their short-term loans, since early 2020 when the local stock markets were hit with the shock of the COVID-19 pandemic outbreak. Market insiders say increased risks associated with brokerage companies’ involvement in real estate project financing or assetbacked commercial papers (ABCP) have led the firms to secure enough liquidity to buffer any potential shocks.

In a similar move to secure liquidity, Daol Investment is currently seeking a potential buyer of its Thai affiliate at a price of about 100 billion won. Daol is the only Korean securities company active in the Thai financial market.

A recent paper published by the Korea Institute of Finance (KIF) stated that local mid-tier brokerages’ liquidity has so far remained at a safe level as of the end of the second quarter. Yet the paper warned that the situation could change drastically, depending on markets’ investor sentiment. The paper also said brokerage companies with heavy exposure to proprietary trading or real estate project financing are more vulnerable to further falls in asset prices.