[THE INVESTOR] Volatility in share prices have a high influence over the financial condition of South Korean securities firms, the government’s data showed Sept. 27.

In an April stress test of 45 local brokerages, the Financial Supervisory Service analyzed changes in net capital ratio, a proportion of net operating capital to gross risks.

It was based on major indices in late November last year, when the KOSPI stood at 1,997.97 and the yield on three-year Treasury was 1.785 percent. The local currency was traded at 1,158.0 won per US dollar.

Under a scenario that the KOSPI falls 30 percent to 1,394.38, small brokerage companies with less than 300 billion won in assets suffer an average of 200 billion won in loss and their NCR drops to 171.1 percent from 199.7 percent.

Large ones with 1 trillion or more in assets incur 1.9 trillion won in loss, with their NCR plunging to 872.1 percent from 1,088 percent.

If the NCR of a securities firm dips below 150 percent, it is regarded as exposed to serious financial risks.

In a related document submitted to Rep. Park Yong-jin of the main opposition Minjoo Party of Korea for an annual parliamentary audit of its affairs, the FSS said it can’t disclose detailed data on specific securities firms.

The test showed that interest rates and foreign exchange rates have comparatively little impact on the financial health of local brokerages.

(theinvestor@heraldcorp.com)