Fitch Ratings yesterday affirmed a stable outlook for the local securities sector this year, indicating that a prudent supervisory environment governing capital retention, credit risk exposure and long-term investment expansion have contributed to the financial stability of local securities firms.
Compared to international peers, the sector’s capitalization is strong and contrasts with higher leverage levels seen at US investment banks, which have suffered liquidity pressures during the credit crisis, the rating agency said in a report yesterday.
It said the sector’s liquidity was adequate, supported by sufficient and consistently positive net current assets, while the liberalization of numerous laws would help boost its revenue diversity and earnings quality.
The opening up of selective wealth management and trust businesses has been especially welcomed by securities firms with no group banking support, as some have lost customers to financial groups, which provide a complete range of financial services, the agency said.
Fitch said that securities firms’ capabilities in terms of product innovation and manufacturing would be a key factor in their competition with banks, which have the upper hand in distribution channels and customer relationships.
Looking ahead, the sector’s earning prospects remain favorable with reasonable turnover in the local stock market as sentiment improves after the new government takes office.
Selective upgrades could be possible for firms that deliver consistent profitability while rating downgrades are less likely and should be limited, the report said.
The agency said it views the market’s merger and acquisition-driven rating changes as positive as some domestic financial groups want to expand their franchise value by acquiring securities firms.