Despite 1Q Surprise Earnings, Financial Stocks' Share Prices Remain Weak; 2Q Outlook Also Challenging

Four Major Financial Holding Companies Near 3 Trillion Won in Net Profit but Stock Prices Fade
Stock Price Growth Rate Trails KOSPI Increase
Concerns Persist in Q2 Due to Rising Corporate Loans and Declining Net Interest Margin

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[Asia Economy Reporter Minwoo Lee] Although major domestic financial group holding companies recorded 'surprise earnings' in the first quarter of this year, their stock prices seem unable to rebound. This appears to be because concerns remain over the extension of small business loans and a sharp decline in non-interest income, as the impact of the novel coronavirus disease (COVID-19) is expected to be fully reflected from the second quarter onward.

According to the Korea Exchange as of 9:30 a.m. on the 14th, Shinhan Financial Group's stock price stood at 29,000 won, down 1.36% from the previous day. KB Financial Group also recorded 31,100 won at the same time, down 1.11%. Woori Financial Group and Hana Financial Group showed declines as well, at 7,880 won (-1.62%) and 25,250 won (-2.13%) respectively. This contrasts with their surprise earnings in the first quarter of this year.

In fact, the four major financial holding companies posted a combined net profit of 2.8767 trillion won in the first quarter of this year. Despite the impact of COVID-19, this was only a 1.6% decrease compared to the first quarter of last year. Hana Financial Group’s net profit actually increased by about 20.4% compared to last year. Shinhan Financial Group also recorded a net profit of 932.4 billion won, up 1.5% year-on-year. Except for KB Financial Group, the other three companies exceeded securities firms’ earnings forecasts. This is why they are considered to have 'held up well' despite the COVID-19 situation.

However, stock prices have struggled to rebound. As of 9:30 a.m. on the same day, the KOSPI index stood at 1,920.51, up 33.4% from the low recorded on March 19. In contrast, only Hana Financial Group’s stock price rose 36.1%, surpassing this increase, while Shinhan Financial Group (29.4%), KB Financial Group (19.4%), and Woori Financial Group (20.1%) all underperformed the KOSPI index’s rise.

This is analyzed to be because the impact of COVID-19 was not fully reflected in the first quarter’s earnings, and various concerns such as the effects of interest rate cuts, loan maturity extensions, sharp declines in non-interest income, and narrowing net interest margins (NIM) are expected going forward.

Kiwoom Securities researcher Youngsoo Seo explained, "From the second quarter onward, as the COVID-19 effect diminishes and the trend of margin decline accelerates due to benchmark interest rate cuts, the decrease in interest income is expected to continue." He added, "While differentiated funding markets will sustain liquidity crunches for marginal companies, increasing funding demand from some large and small businesses may raise credit risk." He continued, "Although government support has prevented bankruptcies in sectors such as self-employed businesses and airlines and mitigated the economic downturn, this is only a temporary measure. As corporate loan demand rises and capital burdens increase sharply, if banks expand emergency loans for small and medium enterprises and play various roles to stimulate the economy, their credit creation capacity could significantly deteriorate."

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