Headquarters of multiple securites are seen at Seoul's financial district in Yeouido in this file photo. Yonhap

Brokerage houses in Korea are struggling with a protracted decline in profitability, due to risks associated with real estate project financing (PF) that persist for more than a year.

Project financing refers to long-term financing of infrastructure or industrial projects based upon the projected cash flows of the project rather than the balance sheets of the corresponding firms.

Brokerage houses are heavily linked to the PF as they have purchased asset-backed commercial papers (ABCPs) issued by involved developers.

According to financial market tracker FnGuide, Friday, five of the major brokerage houses_ Mirae Asset Securities, Samsung Securities, NH Investment & Securities, Korea Investment & Securities and Kiwoom Securities _ are estimated to post a net profit of 951.5 billion won ($705.8 million) combined in the first quarter.

The amount will down 24.9 percent from the January-March period in 2023.

The forecast comes as the country's 60 securities reported a net profit of 5.79 trillion won for entire 2023, marking a 20.2 percent from the previous year.

The 2022 net profit of 4.45 trillion won was nearly halved from 9.08 trillion won in 2021, when the benchmark KOSPI rose above historic 3,000 level.

Brokerage commission, a major source of income for securities companies that occur when they orders from investors and complete each transaction, also have been declining.

For instance, the amount was 11.72 trillion won in 2023, a 10.1 percent fall from the previous year.

FnGuide assessed such decline in profitability comes as the companies are setting aside more money as allowance for bad debts.

It refers to estimated amount of a firm's receivables that may ultimately be uncollectible from customers.

FnGuide said whether the securities firms can improve their profit will depend on how successfully the financial regulators carry out its plan to normalize PF market.