Banks are striving to enhance their competitiveness by expanding their suite of products and services, and strengthening their ecosystem to facilitate cross-selling and attract new customers. Banks’ traditional lending business is facing keen competition, thinner margins, and is constrained by credit growth quotas.

As of 3M2025, banks’ net interest margin (NIM) declined by 35 basis points to 2.9% from the prior year. An increasing number of banks are adding higher-margin securities brokerage and capital market services – with margins higher than those of bank lending – to strengthen their group ecosystem. While investments in securities subsidiaries attract regulatory capital deductions1 , banks remain confident that expanding into the securities business will enhance their overall profitability. In 2024, several bank-affiliated securities firms, such as TCBS, contributed substantially—nearly 20%—to the parent banks’ profits.

Over the past three years, private bank-affiliated firms have gained significant traction among the top 30 by asset size, given substantial capital infusions. Their margin lending market share also surged from 19% in 2022 to 30% in 2024, underscoring their strong growth. Private bank-affiliated firms often leverage their parent banks’ capital and customer networks to expand their market coverage in brokerage and bond distribution, a unique strength not shared by other local standalone firms.

As such, Simon Chen, CFA Head of Ratings & Research at Vis Rating expects private bank- affiliated firms to continue leading sector profit growth over the next 12-18 months. Over the past three years, their return on average assets (ROAA) averaged 5.5%, consistently surpassing that of their peers at 3.5% (Exhibit 9). In contrast, profit growth of foreign and smaller domestic securities firms will lag behind, as their small customer base and a lack of scale limit their ability to compete.

Banks and their affiliated securities firms typically partner closely to lend large corporate borrowers - mainly in real estate and renewable energy - through corporate loans, bond investments and/or margin lending. Several corporate borrowers have recently been embroiled in project-related legal issues and/or defaulted on corporate bond payments.

In addition, securities firms may also commit to buy back bonds sold to retail customers as part of their bond distribution. High credit concentration among banks and securities firms toward large corporates will increase banks’ operational risks and amplify their vulnerability to single-name credit events and runs on customer deposits. To limit large credit losses, in Simon Chen’s view, it is crucial for banks and their securities firm affiliates to harmonize new customer selection criteria and strengthen the management of collateral assets.