Thai securities companies that are able to build up their franchises and continue to diversify to reduce their reliance on brokerage revenue are likely to fare better in the challenging operating environment, Fitch Ratings says.
Fitch expects the financial performance of Thai securities firms to remain volatile because of continued pressure on commissions as well as rapid shifts in stock market sentiment.
However, the agency expects local securities firms to gradually reduce reliance on brokerage revenue over the medium to long term. Securities companies that succeed in increasing the contribution of non-brokerage activities, including proprietary investments, margin lending, asset management, private equity and investment banking, will have more stable income with higher profit margins.
Securities companies in Thailand continue to operate in a crowded market with thinning commissions. Since brokerage commissions were deregulated in 2012, pricing competition has intensified and the industry's average brokerage commission rates for all client types have steadily shrunk.
Thailand's largest client segment remains retail investors with a 41% share of market trading value at the end of the first half 2018 (down from 54% in 2016).
However, stronger demand from cross-border brokerage orders and subdued retail trading activity have resulted in expansion of foreign institutional investors' share of total trading value to 36% in the first half of 2018 (from 26% in 2016).
Revenue from foreign institutional investors tends to be volatile and have very low commissions.