Korean brokerages are rapidly expanding their capital bases on the back of a robust stock market rally, though the rapid scale-up is fueling concerns over declining profitability and greater exposure to volatile markets, industry officials said Thursday.

Korea Investment & Securities saw its equity capital jump 18.2 percent to 13.19 trillion won ($9.46 billion) in June, up from 11.16 trillion won last December, driven by strong earnings and proactive capital raises to fund new ventures.

Medium-sized firms also posted steep growth. KB Securities saw its equity capital jump 19.2 percent from 6.69 trillion won to 7.98 trillion won, recording the highest growth rate among the top eight brokerages. Peers including Kiwoom, Meritz, Hana and Samsung also posted solid gains.

The capital expansion comes as brokerages benefit from a broader rally in the benchmark KOSPI and the diversification of revenue streams beyond retail stock trading.

“Brokerage earnings have recently improved on the back of simultaneous growth in investment banking, wealth management and trading services,” Ahn Young-joon, an analyst at Kiwoom Securities, said. “With a growing investor population and rising corporate demand for non-bank financing, the industry’s operational base is undergoing a structural expansion.”

However, larger balance sheets present new challenges. While increased capital allows brokerages to expand corporate financing and enter new businesses such as investment management accounts, failure to boost profits proportionally risks diluting their return on equity.

Worries are also mounting over excessive risk-taking during boom periods, with recent troubles in the local real estate project financing market serving as a reminder. Rapid investments turned into bad debt when the market slowed.

Market observers say the long-term success of brokerages will depend less on the size of their capital cushions than on how effectively they deploy them.

“A growing capital base confirms that firms are generating solid profits, but the immediate priority is diversifying revenue streams and driving higher yields rather than simply accumulating capital,” an official from one of the major brokerages said.

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