The FINANCIAL — Fitch Ratings expects the profitability for the five major Japanese securities firms to remain dependent on equity and fixed-income market movements.
Net operating revenue for the financial year ended March 2024 (FYE24) increased by 26% on average, primarily due to improved investor sentiment, which boosted commissions from equities brokerage and securities underwriting and distribution. Operating profit more than doubled for most firms in FYE24, with return on equity improving by an average of 4pp. However, profitability may be challenged by an uncertain operating environment and market.
The companies are focusing on asset management and client-centric solutions to stabilise revenue and reduce market sensitivity. However, high cost structures persist, with costs rising due to inflation and yen depreciation. They are also
improving their risk controls in response to market volatility. Their assets remain short-term and liquid, and credit risks are modest due to margin requirements. The firms continue to address non-financial risks.
Fitch expects Nomura Holdings Inc. (NHI) and Daiwa Securities Group Inc. (DSGI) to maintain strong capital positions, though Basel III rules may reduce their common equity Tier 1 ratios. NHI and DSGI have stable funding structures, though they are more reliant on wholesale funding than commercial banks. Other firms maintain adequate funding and can access banking affiliate resources as needed.
The rated securities firms’ Long-Term Issuer Default Ratings (IDRs) are driven by expected support from the government or parent companies, and all are with a Stable Outlook. Profitability remains a weak point for the standalone credit ratings of NHI and DSGI, and increased risk without adequate mitigants could pressure their Viability Ratings. However, IDR downgrades are unlikely unless accompanied by downgrades in their Government Support Ratings.
The full report ” Japan’s Major Securities Firms – Peer Review FYE24″ is available at www.fitchratings.com
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