KB, Shinhan, and Woori Financials' H1 Net Profit Drops 750 Billion Won Due to 'Corona Failures' and Other Responses

Total Amount of 4 Major Landowners Down to 610 Billion Won
Impact of Massive Provision Accumulation

[Asia Economy Reporter Kim Hyo-jin] The net profits of the four major financial holding companies?KB Kookmin, Shinhan, Hana, and Woori Financial Group?decreased by more than 600 billion KRW in the first half of this year. Excluding Hana Financial, which recorded the highest performance since 2012, defying market expectations, the total net profit declined by about 750 billion KRW. This was largely influenced by the substantial provisioning for loan losses in consideration of the prolonged impact of the COVID-19 pandemic and private equity fund sales accidents.

According to the financial sector on the 28th, KB Financial's net profit for the first half was 1.7113 trillion KRW, down 6.8% compared to the same period last year, and Shinhan Financial's was 1.8055 trillion KRW, down 5.7%. Woori Financial's net profit was 660.5 billion KRW, a nearly 44.0% decrease. Among the four major financial holding companies, only Hana Financial recorded an increase in net profit (11.6%) compared to the same period last year, with 1.3446 trillion KRW. The total net profit of the four major financial holding companies for the first half was 5.5219 trillion KRW, down 9.9% or 613.5 billion KRW from 6.1354 trillion KRW in the first half of last year. The combined net profit of KB Financial, Shinhan, and Woori Financial, excluding Hana Financial, was 4.1773 trillion KRW, a decrease of 15.3% or 753.6 billion KRW compared to the previous year.

The decline in net profit is due to the large accumulation of provisions to prepare for potential future losses. In the case of Shinhan Financial, considering the potential deterioration of small business loans and other COVID-19-related financial support, it set aside 185 billion KRW in provisions in the second quarter. Shinhan Financial Investment also accumulated 124.8 billion KRW in provisions related to DLS funds and incurred 76.9 billion KRW in non-operating expenses related to Lime Asset Management fund sales, which also had an impact. KB Financial set aside 206 billion KRW in provisions to prepare for credit quality deterioration due to COVID-19.

Woori Financial accumulated 160 billion KRW in provisions related to private equity funds and 237.5 billion KRW related to COVID-19 loans. The significant decrease in Woori Financial's net profit is also analyzed to be influenced by its structural limitation of not having a securities affiliate. It did not benefit from the stock market boom driven by movements such as the 'Donghak Ant Movement.' While accumulating provisions worsens profitability indicators, it improves or defends soundness indicators. Therefore, the first-half performance of these financial holding companies is seen as a proactive response to uncertainty rather than a sign of poor business performance.

Representative Profitability Indicator NIM Declines
Profit Structure Worsens Due to Ultra-Low Interest Rates

From the perspective of financial holding companies, the decline in the representative profitability indicator, net interest margin (NIM), is expected to be significant due to the series of base rate cuts for liquidity supply amid the COVID-19 impact, the advent of an ultra-low interest rate era, and the effects of various policy fund loans. NIM is calculated by subtracting funding costs from asset management income and dividing by total managed assets. KB Financial's NIM in the second quarter was 1.74%, down 10 basis points (1bp = 0.10 percentage points) from the previous quarter. Shinhan Financial's was 1.84%, down 2bp, and Woori Financial's was 1.58%, down 5bp. By bank, KB Kookmin Bank recorded 1.50% (down 6bp from the previous quarter), Shinhan Bank 1.39% (down 2bp), Hana Bank 1.37% (down 2bp), and Woori Bank 1.34% (down 4bp).

The key going forward appears to be how quickly they adapt to the rapidly changing financial environment centered on digital and data. The vested interests that banks have enjoyed in loans, deposits, and financial product sales are gradually declining, and with the entry of big tech companies into finance, the financial industry is becoming more competitive. Accordingly, major banks are simultaneously innovating their internal sales systems to be digital-centric and diversifying their operations into comprehensive wealth management (WM) and other areas. A financial sector official said, "As innovative finance and data finance will be in full swing from the second half of this year, the profit structure maintained so far may become meaningless."

Meanwhile, based on net profits in the second quarter of this year, signs of a 'profit ranking structure crack' among major financial holding companies are also emerging. Last year, on an annual basis, Shinhan Financial had the highest net profit at 3.4035 trillion KRW, followed by KB Financial at 3.3118 trillion KRW. However, in the second quarter of this year, KB Financial's net profit of 981.8 billion KRW surpassed Shinhan Financial's 873.2 billion KRW.

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