Regional Financial Holding Companies Are Shaking (Comprehensive)

'Shivering' Ahead of Q1 Earnings Announcement
BNK, DGB, and JB Financial All Expected to Decline
Q2 Looks Even Bleaker Due to COVID-19 Impact

[Asia Economy Reporter Kim Min-young] Regional financial holding companies are on high alert ahead of their first-quarter earnings announcements this year. With prolonged recessions in key local industries such as shipbuilding, steel, and automobiles causing economic stagnation, the added blow of the novel coronavirus disease (COVID-19) raises concerns that they may face their 'worst performance report.'

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 announced their earnings this afternoon, while DGB Financial will release theirs on the 7th of next month.

DGB Financial and BNK Financial, based in the Daegu-Gyeongbuk and Yeongnam regions, which were hit hard by COVID-19, are expected to see significant declines in performance of -17.8% and -18.4%, respectively. JB Financial, which posted a record high annual performance 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 was 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 struggling local 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) from 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 credit rating downgrades of banks in Busan, Gyeongnam, Daegu, and Jeju. The reason was the large scale of loans these banks have extended to local SMEs.

The leadership of regional financial holding chairpersons and bank presidents is also being tested. Kim Ji-wan, chairman of BNK Financial, succeeded in his reappointment after last month's shareholders' meeting. 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, who took office in March last year as chairman of JB Financial, has promoted a strong financial group. Key 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 stated, "Chairpersons and bank presidents are putting all their efforts into COVID-19 financial support, such as ultra-low interest loans for small business owners, setting aside other matters."

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