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Korean brokerage houses warned of bond losses from rate rise

Collected: 2016.12.16

Distributed: 2016.12.19

Source: Go Direct

South Korean brokerage houses face growing risk of losing money from their bond holdings that amount to 188 trillion won ($159.5 billion), or half of their total assets as bond prices have been crashing upon news of faster-than-expected tightening in the United States.

They also hold 710 trillion won in interest-based derivatives, leading the financial watchdog to issue vigilance in hedging against greater volatility in interest rates.

According to the Financial Supervisory Service (FSS), local securities companies own 188 trillion won in bonds, 7.5 trillion won in commercial papers, 710.7 trillion won in interest rate derivatives, and another 13.4 trillion won in exotic derivatives linked to interest rates.

Local rating agency Korea Investors Service warned of losses from bond investments that could start affecting balance sheets of securities companies as early as the fourth quarter.

During a meeting with chief risk officers (CROs) of the nation’s 16 brokerage houses on Wednesday, FSS deputy governor Min Byung-hyun called for a “thorough risk management” in readiness for greater volatility in interest rates due to liftoff in interest rates in the United States.

Securities companies also were warned of risk against real estate slump as 67 percent of their debt are backed by real estate properties.

By Bae Mi-jung and Park Yoon-gu

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