Big Chinese banks such as Industrial Bank and Bank of Communications plan to move into the country’s brokerage industry to take advantage of rising profits in securities trading as volume increases, according to media reports.
The move, which comes as the country’s regulator considers allowing banks to apply for brokerage licenses, could threaten the profits of major Chinese brokerages such as CITIC Securities and China International Capital Corp and reshape the rapidly growing industry, according to Bloomberg News.
‘Brokerages will come under heavy pressure if banks are allowed to enter,’ Luo Yi, an analyst at Huatai Securities in Shenzhen, told Bloomberg. ‘It will lead to cut-throat competition as banks control most of the financial resources.’
Industrial Bank intends to buy Huafu Securities, according to unidentified sources cited by the news agency, while Bank of Communications aims to buy a stake in Huaying Securities from the Royal Bank of Scotland Group.
According to the Securities Association of China, 119 out of the 120 brokerages posted a profit last year, bringing combined profits in the industry to 97 bn yuan ($15 bn). At the same time, China’s brokerages saw their assets almost double to 4.1 tn yuan at the end of 2014 from 2.1 tn a year earlier.
The country’s three largest brokerages ‒ CITIC Securities, Haitong Securities and Guotai Junan Securities ‒ saw part of their activities curtailed earlier this year when the China Securities Regulatory Commission banned them from opening new margin trading accounts for three months. The move came after regulators probed margin trading accounts at 45 brokerages last month and found that some allow clients to delay repayment of financing for longer than allowed.
