Taiwan’s securities houses will have difficulty stabilizing their profits until they ramp up diversification efforts, which is unlikely in the near future given the slow pace of deregulation, Taiwan Ratings Corp (中華信評), the local arm of Standard & Poor’s, said yesterday.
“The slow pace of deregulation and continued strong competition are likely to keep securities firms from significantly improving their concentration in equities-related business this year,” Taiwan Ratings credit analyst Yuhan Lan (藍于涵) said.
This business includes brokerage commission, margin loan interest income and proprietary trading.
As such, the profits of securities firms will remain exposed to the unpredictable performance of investment markets, Lan said, adding that local market volatility weakened their earnings last year.
Additionally, the financial services regulator exercises tighter control over the securities industry than its Asia-Pacific counterparts, making competition more intense in the small, but saturated market, Lan said.
“Sharp competition and regulatory limitations in Taiwan are likely to constrain efforts to diversify away from traditional businesses over the next one or two years,” the analyst said.
When deregulation does gain pace, it will be larger players with more extensive resources and a broad client base that will benefit from economy of scale and turn higher profits, Lan said.
To that end, China Development Financial Holding Co (中華開發金控) has announced an offer to buy KGI Securities Co (凱基證券).