As financial authorities push to reintroduce the old Net Capital Ratio (NCR) with heightened risk sensitivity for comprehensive financial investment firms, IMA business securities companies are bracing for potential challenges in capital adequacy management. Under the current metrics, the financial health rankings of IMA firms, which have reached the top tier in the industry, would plummet if the old NCR were applied.
According to the Financial Supervisory Service's electronic disclosure system on August 12, among major securities firms, Korea Investment & Securities reported the highest NCR at 3756.22% for the first quarter of this year, followed by Mirae Asset Securities at 3524.2% and NH Investment & Securities at 2449.4%. All three companies are licensed IMA operators.
In contrast, KB Securities reported an NCR of 2184.06%, Shinhan Investment Corp. at 1986.51%, and Kiwoom Securities at 1848.23%, all lower than the top three IMA firms. This reflects the current formula's tendency for larger firms to report relatively higher NCRs.
The NCR serves as a capital adequacy indicator for securities firms, showing the ratio of net assets to risk assets. The denominator is effectively a fixed value based on required capital for licensed operations, while the numerator is the net capital minus risk amounts. In contrast, the old NCR was calculated by dividing net capital by total risk amounts.
Applying the old NCR calculation would alter the rankings significantly. Under the old NCR, Shinhan Investment Corp. would lead with 202.06%, followed by KB Securities at 192.78% and Kiwoom Securities at 192.37%. Meanwhile, Korea Investment & Securities would drop to 167.18%, Mirae Asset Securities to 165.34%, and NH Investment & Securities to 159.31%, all falling below the previous management improvement recommendation threshold of 150%.
Notably, Mirae Asset Securities' capital adequacy assessment changed when comparing the current and old NCR. While its current NCR rose from 3433.5% at the end of last year to 3524.2% in the first quarter, the old NCR fell from 170.12% to 165.34% during the same period, indicating that the growth rate of total risk amounts outpaced that of net capital.
The push for reintroducing the old NCR stems from concerns that the current metrics do not adequately capture the actual increase in risk as large securities firms expand their funding and operational scales. The aim is to manage capital adequacy more stringently in relation to risk. The old NCR can reflect the size of assets that can be immediately liquidated in a crisis.
Industry insiders agree that the introduction of the old NCR will inevitably increase the burden of capital management. A financial investment industry official stated, "If the old NCR is simply applied, even sound securities firms will face additional capital raising burdens," adding that there could be inefficiencies in needing to secure additional capital through subordinated bonds and new capital securities to comply with regulations. The ongoing increase in provisions related to corporate loans has also significantly raised total risk amounts compared to the past.
As a result, there are calls within the industry for caution in restoring the old NCR to its previous standards. Another industry official remarked, "The risk values calculated in the metrics should be refined based on loan types, borrower creditworthiness, collateral stability, and credit enhancements."
* This article has been translated by AI.
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