Securities brokers in China have seen a rise in profits after a three-year decline, according to a KPMG survey of 115 securities companies.

The survey reveals that margin financing and securities lending have become a steady source of income, accounting for 11.59% of sector’s income, triple their combined 4.05% share in 2012.

Operating income jumped 23% year-on-year to RMB159bn ($25.7bn) while profit rose 34% to RMB44bn. Traditional brokerage remained the major income stream and showed signs of growth, accounting for 48% of the sector’s total operating income (39% in 2012).

“2014 will be a crucial for China’s securities sector,” said Bonn Liu, partner at KPMG China. “Securities firms have had to change their business models from providing traditional agency business to that of wealth management and capital intermediary services. These new innovative businesses have helped to boost their income structure.”

While the rise in profits is welcome news for the sector, it still faces challenges. Online accounts have intensified competition among brokers for commission and the rapid growth of such a capital-intensive business has resulted in higher liquidity risks.

“Securities companies need to further explore… innovative margin trading and securities lending business, continued over-the-counter market expansion, as well as the internet securities business growth,” said Tony Cheung, partner at KPMG China.

Meanwhile, asset management is playing a more important role in the sector. The value of securities brokers products reached RMB5.2trn by the end of 2013, almost tripling in size from the previous year.

The upcoming mutual fund recognition scheme between China and Hong Kong and the Shanghai-Hong Kong Stock Connect pilot programme will also provide wider opportunities for securities brokers in China.