Historic Crisis Approaches... Heads of 5 Major Financial Groups Announce "Full Business Review This Year" (Comprehensive)

COVID-19 Spread in the New 3-Low Era... Biggest Threat Since Financial Crisis
Emergency Meetings Convened One After Another... Swift Response Measures Underway

[Asia Economy Reporter Kangwook Cho] The heads of South Korea's five major financial holding companies?Shinhan, KB, Hana, Woori, and NH?have emphasized a sense of crisis amid an emergency situation, swiftly responding by ordering a comprehensive review of their groups' business directions. This comes amid diagnoses that the so-called 'new three lows era'?characterized by low growth, low inflation, and low interest rates?is becoming entrenched, and growing concerns that the global spread of the novel coronavirus infection (COVID-19) could pose the greatest threat since the 2008 global financial crisis.

According to the financial sector on the 12th, the chairmen of the five major financial holding companies recently convened emergency meetings one after another, emphasizing the seriousness of the crisis and ordering the prompt preparation of countermeasures. In particular, the two heads of NH Nonghyup Financial and Woori Financial have instructed a full review of this year's business plans.

Kim Kwang-soo, chairman of NH Nonghyup Financial, stated, "The overall economic situation has deteriorated more than expected," and announced a policy to review the business plans set at the end of last year. This is due to significant downside concerns such as the COVID-19 crisis amid the economic recession and the possibility of further base rate cuts. Initially, NH Nonghyup Financial set this year's target at about 1.73 trillion won, approximately 50 billion won less than last year's 1.7796 trillion won. However, due to the recent rapid changes in the management environment, it is seen as inevitable to lower this year's net profit target.

Son Tae-seung, chairman of Woori Financial, said, "Risks to the economic and business environment are increasing due to unforeseen circumstances," and ordered a re-examination of this year's management strategy and financial management direction. He particularly requested a review of the economic and financial industry impacts caused by COVID-19, as well as risk factors for each subsidiary. Woori Financial plans to revise its management strategy for this year if necessary, depending on the progress of the situation and the results of the review.

The heads of Shinhan, KB, and Hana Financial also preside over emergency management meetings daily, receiving reports on the rapidly changing economic situation and emphasizing that the entire group is in an emergency.

Cho Yong-byeong, chairman of Shinhan Financial, shared a sense of crisis at an executive meeting on the 6th with holding company executives and subsidiary CEOs, emphasizing that "close communication among group companies is crucial in difficult times" and stressing 'One Shinhan.' This is Cho's management philosophy to leverage each subsidiary's top expertise while creating strong synergy as one Shinhan. He particularly urged management to respond swiftly to voices from the field and to make revolutionary improvements to existing work processes.

Yoon Jong-kyu, chairman of KB Financial, ordered daily monitoring and reporting of the economy, financial markets, industry trends, and market risk indicators amid rapidly changing market conditions. He specifically instructed, "Prepare countermeasures according to the situation if abnormal signs occur." Earlier, KB Financial established a 'Group Emergency Management Committee' centered on Chairman Yoon, involving CEOs of seven subsidiaries. This is to provide company-wide support for the COVID-19 crisis and to prepare swift and practical countermeasures for the emergency situation.

Kim Jung-tae, chairman of Hana Financial, raised his voice, saying, "Let's overcome the crisis with a spirit of sacrifice in this difficult financial environment and lay the foundation for growth." He shared awareness of the deteriorated financial environment due to sluggish growth caused by global trade frictions, government regulatory tightening, and the entry of new competitors, urging all employees to do their best in their respective positions.

The reason why the heads of each financial holding company have emphasized the emergency situation is believed to be a shared recognition that the impact of this crisis will be an 'unprecedented crisis.' The government's real estate loan regulations have frozen the loan market, and non-interest income has inevitably been hit by incidents such as derivative-linked funds (DLF) and Lime scandals. In particular, concerns are spreading that insurance companies may face a wave of bankruptcies due to negative margins caused by ultra-low interest rates and limits on returns from managed assets. Moreover, as the number of small and medium-sized enterprises and self-employed individuals hit by the COVID-19 spread increases, there are even forecasts that prolonged crisis will lead to a surge in marginal companies, worsening banks' asset soundness.

Especially if COVID-19 prolongs, the risk of SME loan defaults will increase, raising concerns about liquidity crunches in the banking sector. Economic sentiment is freezing, and in the low-cost carrier (LCC) and travel industries, which have been directly hit, there are forecasts of a surge in marginal companies. The financial investment industry estimates the total risk exposure of banks to three sectors?LCC airline industry (220.7 billion won), travel industry (51.3 billion won), and film industry (182.7 billion won)?at about 454.7 billion won.

The situation of regional banks is even more serious. DGB Financial and BNK Financial have a high proportion of SME loans, accounting for 60-70% of total loans, and the proportion of self-employed (SOHO) loans also exceeds 20% of total loans, higher than other banks. The collapse of existing core industries remains a risk factor for regional banks. According to the Korea Deposit Insurance Corporation, as of the end of September 2019, the proportion of loans related to the top four industries with signs of insolvency estimated by the Financial Supervisory Service?machinery equipment, real estate, auto parts, and metal processing?accounted for 26.9% of total loans by regional banks. This is 10 percentage points higher than commercial banks (17%).

International credit rating agency Moody's warned, "The spread of COVID-19 may cause disruptions in many domestic industries, which could lead to an expansion of asset quality risks for some banks exposed to these impacts." Additionally, Euler Hermes, the world's largest trade credit insurer affiliated with Allianz, predicted, "Due to increased economic uncertainty, there is a risk that corporate bankruptcies originating in Asia could spread to companies worldwide."

This content was produced with the assistance of AI translation services.