South Korean securities firms are turning to interest income for earnings - the usual revenue source for banks - to make up for declining brokerage commission revenue, according to multiple industry sources on Thursday.

In the first three quarters ended September, Korea’s top 17 brokerages by asset raised 4.99 trillion won ($4.3 billion) from interest income, and the figure is likely to reach over the 5 trillion won mark for the first time this year. Revenue from brokerage commissions, however, was 4.3 trillion won over the cited period after declining in recent years.

In particular, in the July-September period, brokerage firms’ interest income on a consolidated basis was 1.7 trillion won, up 2.5 percent from a year ago. Their commission revenue, meanwhile, dropped 0.1 percent over the same period.

Six brokerage firms in particular - Mirae Asset Securities Co., Hana Financial Investment Co., Hyundai Securities Co., Kiwoom Securities Co., KTB Investment & Securities Co., and Kyobo Securities Co. - have diversified their profit structure by expanding interest income amid a drop in overall trading value.

An unnamed official from the brokerage industry said that securities companies are trying to make up for the decline in commission revenue amid sluggish equity market by increasing margin from credit loans that are provided to investors to buy securities. Brokerages will increase their dependence on credit margins even more in the future when commission fees drop to near zero percent, he added.

In line with efforts to expand interest income from loans that is considered a business territory of traditional banks, brokerage firms have been increasingly engaged in acquisitions of savings banks. Yuanta Securities Co., for example, acquired Hanshin Savings Bank in August last year while Kiwoom Securities bought TS Savings Bank in July. The acquisitions are aimed at maximizing revenue by securing low-interest funds through their savings banks and lending them at higher-than-market interest to investors.

By Moon Il-ho and Chung Woo-sung

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