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Profitability of investment service providers drop sharply in Q2

Profitability of Hungarian investment service providers dropped sharply in the second quarter of 2012 on falling securities turnover and growing risks, Hungarian financial market regulator PSzÁF said in its quarterly report on the segment.

After-tax profit of investment service providers dropped 50% from the first quarter to HUF 469 million and was down 36% from the same period a year earlier. Based on four-quarter figures, profits dropped for the third quarter in a row.

Profits from investment services fell 15%, financial profit dropped, one-off losses jumped and payroll costs also rose.

Half of the companies in the sector reported lower profits and the number of those making losses did not change, PSzÁF said.

The capital position worsened at over half of the companies in the segment. There were two business on watch and another three in a vulnerable position, the regulator said. The capital adequacy ratio of the segment dropped 2.2 percentage points from Q1 but was still sufficient at 27.58% at the end of June, the report added.

Spot market turnover totaled HUF 35,128 billion and derivatives turnover came to HUF 66,883 billion in the second quarter. Turnover of investment service providers fell 26% from the first quarter, mainly reflecting a 27% drop in trade on commission. The falls shows the contraction of OTC trade of derivatives swaps of banks and foreign banks' branches on their own accounts.

Total assets of the investment service providers, at HUF 114.1 billion at the end of June, were up 7.7% from the end of March and fell 7.8% year-on-year. Adjusted for one-off factors, the segments' total assets continued a decline started a year and a half ago, PSzÁF noted.