(Yicai Global) Jan. 29 -- Impairment losses at China’s securities firms may have exceeded CNY20 billion (USD3.1 billion) last year due mainly to a drop in the value of equity pledged for loans and a spate of high-profile corporate bond defaults, the 21st Century Business Herald reported today.

Eight of the 15 brokerages so far to release preliminary earnings for 2020 made provisions of CNY6.5 billion (USD1 billion) for asset impairments, the reduction in an asset’s value when it is no longer worth what was previously estimated. That figure could rise to CNY20 billion once the remainder have published their financial results, the report added.

Net profit gained at each of the eight that have reported, headed by Shenzhen-based Citic Securities at CNY15 billion, the report said.

The impairment losses are mainly due to equity pledge lending, when a borrower pledges company stock as collateral for a loan. When the value of the stock falls, which was the case with many small and mid-sized companies last year, the difference between the stock’s fair value and its book value grows.

There were also a number of high-profile bond defaults, such as miner Yongcheng Coal and Electricity Group and carmaker Brilliance Auto Group, which caused impairments at asset managers to increase, according to the general manager of a securities trader.

Of the 15 brokerages, Everbright Securities logged the fastest earnings growth rate, with year-on-year net profit more than quadrupling to CNY2.4 billion (USD372 million). Its provision for liabilities and asset impairment amounted to CNY2.2 billion, almost the same amount as its profit.

Citic Securities put aside CNY5 billion for asset impairment as of the third quarter, the most of all the brokerages, its financial report showed. That was mainly due to the depreciation of bond assets as well as equity pledges and margin trading, according to financial services provider China International Capital.

Editor: Kim Taylor