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Korea Investment faces credit rating downgrade
By Kim Bo-eun
Korea Investment & Securities' headquarters on Yeouido, Seoul / Korea Times file
By Kim Bo-eun
Korea Investment & Securities is facing a possible credit ratings downgrade over risk management capabilities.
Moody's Investors Service said Tuesday it changed its outlook for the securities firm to negative from ratings under review. Korea Investment's rating was confirmed at Baa2.
"The negative outlook on Korea Investment & Securities reflects uncertainties around the sustainability and effectiveness of de-risking measures taken by the firm," the Moody's report said. "Although multiple regulations are currently in discussion, there are multiple risk areas without announced regulatory risk controls to curb risky exposure growth.”
Moody's stated the risk areas included internally hedged equity-linked securities-related exposures, alternative investment acquisition and sales and stable foreign currency funding.
Korea Investment & Securities posted a net loss of 133.9 billion won in the first quarter, a 161.2 percent fall from year-on-year. This was the brokerage's first quarterly deficit in 11 years. The deficit was attributed to losses in trading, from hedging equity-linked securities.
It is estimated to record over 200 billion won in net profit in the second quarter.
Korea Investment topped local brokerages in net profit for three consecutive years through 2019.
Meanwhile, Moody's changed its outlooks on KB Securities, NH Investment & Securities, Samsung Securities and Shinhan Investment to stable from ratings under review. KB and Shinhan's ratings were confirmed A3, NH's Baa1 and Samsung Baa2.
This concluded the rating agency's review for downgrade for the five brokerages which began in early April.
Moody's said it took into consideration the regulatory measures implemented and being reviewed by financial authorities, as well as the firms' measures taken to increase long-term funding to strengthen their liquidity and funding profiles, as well as the expectation of profit recovery in coming quarters following weak earnings in the first quarter.
The new regulations implemented for enhanced risk management by firms include limiting contingent liabilities stemming from real estate projects and stricter internal control on the sale of complex investment products such as private equity funds.
The agency stated it would assess Korea Investment over the next 12 to 18 months on the effectiveness of expected regulatory actions on funding, risk appetite and leverage.
Moody's last week changed its outlook for Mirae Asset Daewoo to negative from ratings under review, citing risk management capabilities. Mirae Asset is the top securities firm here in terms of assets.