Nice Credit Rating Agency (Nice Ratings) announced on the 25th that it would downgrade DAOL Investment & Securities' corporate credit rating from 'A' to 'A-' and Daol Savings Bank's corporate credit rating from 'BBB+' to 'BBB'.
As the credit ratings were downgraded, the corporate credit rating outlook for the two corporations changed from 'negative' to 'stable,' while DAOL Investment & Securities' short-term credit rating was downgraded from 'A2' to 'A2-.'
Shin Seung-hwan and Lee Ye-ri, responsible researchers at Nice Ratings, explained in a report on the same day that "the downgrade of DAOL Investment & Securities' long- and short-term credit ratings comprehensively reflects the decline in market position and profitability due to the contraction in the real estate finance institutional sector, as well as the deterioration of asset soundness and capital adequacy indicators compared to the past."
DAOL Investment & Securities is a securities firm specializing in investment banking (IB) and corporate sales. The commission revenue from the IB institutional sector accounts for 70% of total operating revenue, indicating a high dependence on real estate finance performance. After the second half of 2022, the real estate project financing (PF) market has slowed, leading to a decline in profitability, with consecutive operating losses occurring in 2023 and 2024.
Nice Ratings noted that "given the recent downward pressure on domestic economic growth, increased external uncertainties, the contraction of the real estate PF environment, and the strengthening of regulations, as well as the potential decrease in dividend revenue due to subsidiary sales and performance declines, it is expected that the recovery of revenue generation capability will take time."
They also pointed out that DAOL Investment & Securities' capital adequacy indicators are lower than the average of other small securities firms. As of the end of 2024, DAOL Investment & Securities' net capital ratio is 218.4%, and the adjusted net capital ratio is 176.7%, falling short of the averages for small firms (net capital ratio 461.5%, adjusted net capital ratio 286.5%).
Regarding the downgrade of Daol Savings Bank's credit rating, it was stated that "this reflects the comprehensive factors such as the continued burden of bad debts leading to decreased profitability and the deterioration of asset soundness and capital adequacy indicators compared to the past."
It was further noted that "considering the slowdown in credit growth due to the deteriorating business environment, the occurrence of defaults related to real estate PF and marginal borrowers, the currently decreased level of profitability is expected to persist in the mid-term," adding that "the ongoing trend of declining soundness indicators since the end of 2021 is also a burden factor."