The Leverage Ratio Of Securities Companies Reaches A New Record

Securities companies are speeding up the pace of capital expansion.

Since this year, Guohai Securities, Dongxing securities, Guolian securities and CITIC Securities have successively launched refinancing plans. In addition, CITIC Securities, CICC and Shenwan Hongyuan securities have been approved to issue more than 10 billion yuan of large denomination corporate bonds.

Wind statistics show that the total liabilities of the securities industry in 2020 will be 6.43 trillion yuan, an increase of 1.09 trillion yuan compared with the total liabilities of 5.34 trillion yuan in 2019.

"Due to the increased demand for financing and investment businesses and the decrease of debt financing costs, the debt financing scale of listed securities companies in 2020 is far higher than that in previous years, with a year-on-year increase of 78%." Wanlian securities analyst Hu Jiang believes that the significant increase in the leverage level of head securities companies will help to improve the ROE (return on net assets) of securities companies.

However, some people in the market believe that capital leverage is not omnipotent. Heavy asset businesses such as margin trading, market making and pledge require a large amount of capital. However, according to the latest annual report, financing and pledge risks are also the main reasons for the credit impairment of securities companies. Therefore, excellent securities companies need to balance asset light businesses such as investment banks and asset heavy businesses.

The leverage ratio of securities companies has reached a new high

In 2020, the leverage ratio of securities companies will reach a new high, rising from 3.48 times in 2019 to 3.57 times.

Large scale securities companies are more active in increasing leverage, and the leverage ratio of top 10 securities companies has increased from 4 times in 2019 to 4.4 times.

Compared with the average leverage ratio of listed securities companies of 3.05 times in 2018, it has a great improvement. At the same time, it is also higher than the average leverage ratio from 2015 to 2017.

According to the data of securities companies that have disclosed annual reports, CICC has the highest leverage ratio of 6.3 times in 2020, which is higher than that of 6.14 in 2019. Secondly, CITIC Securities, Huatai Securities, Shenwan Hongyuan, Guotai Junan and China Galaxy have leverage ratios of more than 4 times.

Cao Haifeng, a non bank financial analyst at UBS Securities, once said that the leverage ratio of the domestic securities industry is between 3-4 times, which is lower than that of overseas. More foreign securities companies entering the domestic market can better play their advantages in the process of A-share institutionalization. QFII, derivatives and other businesses also deserve attention.

Capital leverage ratio approaching warning line

According to the "management measures for risk control indicators of securities companies" (hereinafter referred to as "risk control measures") issued by the CSRC and the calculation standards of supporting risk control indicators, the capital leverage ratio of securities companies shall not be less than 8%.

In calculation, the capital leverage ratio is equal to core net capital / total assets on and off balance sheet × 100%.

The risk control measures also stipulate that the CSRC will set up early warning standards for various risk control indicators. For risk control indicators that are "not lower than" a certain standard, the early warning standard is 120% of the specified standard, which means that the early warning standard of capital leverage ratio is 9.6%.

As of April 14, among the 27 listed securities companies that have published their annual reports, the capital leverage ratio of Dongfang securities is 11.95%, which is close to the warning line.

Moreover, in 2020, the net profit of Dongfang securities was 2.722 billion yuan, but there was a credit impairment of 3.885 billion yuan, and the credit impairment loss accounted for 142.67% of the current net profit. According to its annual report, among the 3.885 billion yuan of credit impairment loss of Dongfang securities, the impairment loss of repurchase financial assets was 3.696 billion yuan (279.86% higher than that of 973 million yuan in 2019), accounting for 95.14%. Among the financial assets of Dongfang securities, the stock pledge repurchase business accounts for the highest proportion.

YueKai securities Chen Mengjie pointed out that with the steady implementation of the registration system and the release of the new delisting rules, some individual stocks are faced with certain delisting risks, while the share price has declined to a certain extent. The securities companies choose to buy the resale financial assets for impairment, and then there will be the situation of withdrawing credit impairment.

In addition, since 2018, there is a default risk in some stock pledge repurchase, and some securities companies choose to make up for the loss through clearing and litigation, but there are still cases of unsuccessful litigation, which is the main reason that directly leads to the provision of impairment losses by securities companies.

For example, Dongfang securities's equity pledge of Huangshi group, Qingdao intermediate and Jiaying pharmaceutical are also involved in different litigation amounts.

Market participants said that in the United States, where direct financing is highly developed, the capital leverage of its investment banks before the financial crisis was about 30 times, and after the strong deleveraging of the financial crisis, its leverage remained at about 10-12 times.

At present, the average capital leverage ratio of China's top securities companies is about 20%, which means that there is still room for leverage on the whole.

In the annual report of the securities companies, the highest capital leverage ratio is BOC securities, with a capital leverage ratio of 43%.

Worries about securities companies' leverage

In order to seize the great development opportunities of the capital market and replenish capital, securities companies continue to increase leverage.

Earlier, CITIC Securities said it intends to continue to increase leverage.

Zhang Youjun, chairman of CITIC Securities, said that although the company's total assets exceeded 1 trillion yuan, it was far from enough to meet the needs of the future development of the capital market. The company has a lot of ideas and plans in the overseas market, and will expand and finance timely according to the needs.

He believes that it is difficult to use a single indicator to measure the results of the merger. It is necessary to assess both short-term and long-term indicators, financial indicators and business indicators, as well as market share and customer status. There is no certain mode. Securities companies should find their own development path.

Tianfeng Securities believes that, referring to the experience of the United States, leverage ratio is the core indicator to determine roe. The leverage ratio of Chinese securities companies is in an increasing period (similar to 1975-1990 of the US Securities Industry). The policy changes and business development of capital intermediary business and institutional trading business (based on ficc and derivatives) are worth looking forward to.

However, while securities companies are making efforts in capital intermediary business, including margin trading, agreed buyback, stock pledge type repo and other businesses, credit risk has also become an important concern.

Among them, the equity pledge business "stepping on thunder" is one of the main reasons for securities companies to withdraw impairment losses, so there are some hidden worries for securities companies to carry out heavy capital business.

As of April 14, the net profits of listed securities companies that have disclosed the annual report of 2020 have all risen sharply year on year.

Among them, the net profits of Huatai Securities, Guotai Junan, Haitong Securities, CITIC Securities and Guangfa Securities all exceeded 10 billion yuan. However, the large amount of credit impairment has a certain drag on the performance of securities business.

For example, in 2020, CITIC Securities made a credit impairment loss of 6.581 billion yuan and reduced net profit of 4.932 billion yuan. Among them, the impairment of financial assets withdrawn for resale is 4.879 billion yuan, and the impairment of financing funds, other creditor's rights investment, accounts receivable and other receivables is 711 million yuan, 555 million yuan and 334 million yuan respectively.

In 2020, the credit impairment loss of Haitong Securities was 4.586 billion yuan, with a year-on-year increase of 61.07%. Among them, the impairment loss of financing funds was 1.024 billion yuan, the impairment loss of repurchase financial assets was 851 million yuan, the credit impairment loss of loans and advances was 16.4098 million yuan, and the impairment loss of financing lease receivables was 1.266 billion yuan.

According to CSCI, with the continuous growth of customers' demand for financial transactions and derivatives hedging, heavy capitalization has become the general trend, and the securities industry needs to constantly enrich its own balance sheet application ability.

In view of the risks of related businesses, Guangdong Development securities suggests that securities companies should pay attention to the policy, market and resource endowment, comprehensively consider the risks and benefits of incremental business, clarify the key issues such as whether to carry out and carry out scale, so as to form differentiated development.