The market size for promissory notes issued by South Korean investment banks is projected to reach 10 trillion won ($8.5 billion) this year, according to data released Monday, with securities firms seeking to further solidify their identities as IBs.
Promissory notes are short-term means of financing with less than one-year maturity and a maximum limit of 200 percent of their capital. The business segment can provide capital to expand the scope of overseas and alternative investments.
The license to issue the notes is granted to brokerages with over 4 trillion won in capital or “mega IBs” at the moment.
The estimated balance in deposits of promissory notes issued by two mega IBs here -- Korea Investment & Securities and NH Investment & Securities -- already amounts to 8.5 trillion won as of end-April.
KIS issued promissory notes worth 5.4 trillion won in the period, the firm’s spokesperson Mun Chun-keun told The Korea Herald. It intends to raise the amount to 6 trillion won by the year-end. NH Investment, meanwhile, issued 3.1 billion won, its official also confirmed, and its goal is to increase the figure to 4 trillion won.
On top of their 10 trillion won-goal, their industry rival KB Securities is gearing up to join the league. It received the green light to issue promissory notes from the Securities Futures Commission last week, which is considered a prerequisite before the Financial Services Commission makes a final decision -- to be announced Wednesday.
Currently, there are five securities firms with 4 trillion won or more in assets but only two can issue promissory notes, to be joined by KB Securities if it secures the rights.
KB reportedly plans to kick off the business by issuing notes worth 1.8 trillion won this year.
The brokerage house was able to make progress in securing a license in its fourth attempt, despite meeting the capital requirement in 2016 after its merger with Hyundai Securities, as its record of engaging in irregular activities including unfair hiring acted as a key obstacle.
More securities firms are apparently seeking to beef up their portfolio through the note offerings, with Shinhan Investment passing a proposal to raise 6.6 billion won in capital, at a board meeting last week. Its capital stood at around 3.4 trillion won as of end-2018 and the latest decision is expected to allow it to meet the 4 trillion won-requirement.
Mirae Asset Daewoo and Samsung Securities are also eligible to apply, but their involvement in illegal business practices in the past have pushed them further down the waiting list.