COVID-19 Triggered Financial Industry All-Stop Crisis

Financial Leaders Buy Back Shares... Stock Prices Drop Sharply Despite Support Efforts
Signs of Bad Loans from Self-Employed Raise Red Flags for Bank Asset Soundness
Frozen Consumer Sentiment Hits Credit Card and Insurance Companies Hard

[Asia Economy Reporter Kangwook Cho] As the prolonged COVID-19 pandemic continues to impact the real economy in various sectors, concerns are growing that even the financial industry, the "lifeline" of our economy, could fall into crisis. Although heads of domestic financial holding companies are attempting to boost stock prices through share buybacks, the decline in stock prices appears to be worsening. With the possibility of a "domino collapse" involving financially vulnerable companies and low-income households being raised, the asset soundness of banks has also turned red. Card companies are inevitably facing profitability deterioration due to frozen consumer sentiment, and insurance companies are confronting their greatest crisis ever, hit by negative margins and limits on returns from managed assets.

According to the financial sector on the 13th, among the seven financial holding companies listed on the domestic stock market, more than half?four CEOs?have repurchased their own shares this year. The most active in share buybacks is Sohn Tae-seung, Chairman of Woori Financial Group. Chairman Sohn purchased 5,000 shares through on-market transactions yesterday, marking his second purchase this year. Kim Jung-tae, Chairman of Hana Financial Group, bought 2,000 shares on February 5, Kim Tae-oh, Chairman of DGB Financial Group, purchased 10,000 shares on the 4th, and Kim Ji-wan, Chairman of BNK Financial Group, acquired 21,800 shares on the 6th.

The urgency to defend stock prices amid the spread of COVID-19 has driven these actions, but the effect has been disappointing. The stock price decline of financial holding companies has exceeded 30% this year, more than double the decline of the KOSPI during the same period. Overseas investor relations (IR) events planned for early this year have also come to a complete halt. With the uncertainty surrounding overseas business approvals, setbacks in the global competitiveness enhancement roadmap, represented by the "New Southern Strategy," have become inevitable.

Warning signs are also detected in the asset soundness of banks, their core affiliates. As of the end of last year, self-employed debt approached 338.5 trillion won, and the proportion of long-term delinquent borrowers?those who have failed to repay loans for over 90 days?among low-income self-employed individuals earning less than 30 million won annually increased from the 1% range at the end of 2018 to 2.2% by the third quarter of last year, indicating clear signs of insolvency. Real estate debt, including mortgage loans, surpassed 2,000 trillion won as early as September last year. The government's tightening of regulations while expanding financial support requests for small and medium enterprises and the self-employed also adds to the burden.

The shadow of recession is deepening in the domestic market. In fact, last month, the total personal credit card approval amount of eight full-service card companies?Shinhan, Samsung, KB Kookmin, Hyundai, BC, Lotte, Woori, and Hana?decreased by 45% compared to the previous month. Additionally, card companies are struggling with a surge in customer refund requests. The "advance payment receivables," where refunds are paid instead of merchants, have recently increased sharply, but if small and medium-sized merchants go bankrupt, recovering these funds becomes uncertain. Particularly, the recovery of funds from airlines, which have a high proportion of bonds issued secured by credit card payments, is considered the biggest issue.

The insurance industry, which relies heavily on face-to-face sales, has been hit hard. According to the industry, as of November last year, the initial insurance premiums generated through face-to-face channels such as agents accounted for 5.3669 trillion won, or 98% of the total for life insurance companies. Non-life insurance companies also have about 87% of their sales through face-to-face channels. However, with fears of infection leading to avoidance of in-person meetings, performance deterioration has become inevitable. The insurance industry is already facing a crisis, with negative margin impacts from ultra-low interest rates and limits on returns from managed assets, and the COVID-19 pandemic has further intensified concerns about a wave of bankruptcies.

A financial sector official expressed concern, saying, "As the shock from the prolonged COVID-19 situation appears across the real economy, the financial market, which forms the foundation of the industry, is also showing accumulated fatigue." He added, "There is growing fear that the financial industry, the lifeline of the economy, could be swept into a 'perfect storm'?a massive economic crisis caused by multiple adverse factors converging."

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