Ahead of Q1 Earnings Announcement... Regional Financial Holding Companies Are Nervous

DGB·BNK Expected to Drop 18%
Due to Decreased Net Interest Margin
Q2 Forecasted as Full-Fledged 'Corona Shock'

[Asia Economy Reporter Kim Min-young] Regional financial holding companies are trembling ahead of their first-quarter earnings announcements this year. The prolonged recession in key regional industries such as shipbuilding, steel, and automobiles, combined with the adverse impact of the novel coronavirus disease (COVID-19), could result in them receiving the 'worst report card.'

According to FnGuide on the 28th, the first-quarter net profit forecast for BNK, DGB, and JB Financial is estimated at 319.4 billion KRW, a 14.4% decrease compared to the same period last year (373.5 billion KRW). BNK Financial and JB Financial will disclose their earnings this afternoon, while DGB Financial will announce theirs on the 7th of next month.

DGB Financial and BNK Financial, based in the Daegu-Gyeongbuk and Yeongnam regions, which were directly hit by COVID-19, are expected to see significant declines in earnings of -17.8% and -18.4%, respectively. JB Financial, which posted its highest-ever annual earnings last year (341.9 billion KRW), is projected to decrease by 3.24% in the first quarter.

The deterioration in the performance of these regional financial holdings is largely due to a decline in net interest margin (NIM). The estimated interest income for the three companies in the first quarter is 1.8263 trillion KRW, down 5.9% from 1.9411 trillion KRW in the same period last year.

The loan structure excessively concentrated on small and medium-sized enterprises (SMEs) and self-employed individuals is also fueling concerns about regional financial holdings. There are worries that the 'COVID tsunami' hitting the already struggling regional economy could undermine the soundness of regional banks with a high proportion of SME loans.

According to the Financial Supervisory Service's Financial Statistics Information System, among corporate loans (92.892 trillion KRW) by six regional banks in Busan, Gyeongnam, Daegu, Jeonbuk, Gwangju, and Jeju last year, SME loans accounted for 85.5909 trillion KRW (92.1%). Of these SME loans, 37.2238 trillion KRW (43.4%) were loans to individual business owners.

This is why there are forecasts that regional banks may face greater difficulties starting from the second quarter, when the adverse effects of COVID-19 are fully reflected. It is anticipated that defaults could spread from regional SMEs and self-employed individuals to regional banks. A financial industry insider expressed concern, saying, "From the second quarter, when the COVID-19 shock is reflected, defaults among small businesses could intensify."

Last month, the international credit rating agency Moody's began reviewing the downgrade of credit ratings for banks in Busan, Gyeongnam, Daegu, and Jeju. The reason was the large scale of loans these banks have extended to regional SMEs.

The leadership of regional financial holding chairpersons and bank presidents is also being put to the test. Kim Ji-wan, chairman of BNK Financial, succeeded in his reappointment through a shareholders' meeting last month. Kim Tae-oh, chairman of DGB Financial, took on the dual role of Daegu Bank president despite internal and external concerns, and Kim Ki-hong, chairman of JB Financial who took office in March last year, has promoted the slogan of a strong small financial group. Major regional bank presidents such as Bin Dae-in of Busan Bank and Lim Yong-taek of Jeonbuk Bank have also been reappointed. A regional financial holding official said, "Putting everything else aside, the holding chairpersons and bank presidents are focusing all their efforts on COVID-19 financial support, such as ultra-low interest loans for small business owners."

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