Three Regional Financial Holding Companies Post Worst First Half Performance

Decrease in Net Income for the First Half Compared to the Previous Year
Impact of Allowance for Bad Debt Risk Provisioning

[Asia Economy Reporter Kim Min-young] In the first half of this year, the three regional financial holding companies all received the worst performance results. With the local economy shrinking and the impact of the novel coronavirus infection (COVID-19), the feared deterioration in profitability has become a reality.

According to the financial sector on the 31st, DGB Financial Group, which announced its earnings the day before, achieved a net income attributable to controlling shareholders of 185.1 billion KRW in the first half of this year. This represents a decrease of about 8.2% compared to the same period last year.

The local economy has shown no signs of recovery for several years, and the company set aside a large amount of provisions to prepare for the risk of insolvency due to COVID-19. DGB Financial set aside 82.3 billion KRW in provisions in the second quarter alone. Provisions refer to funds reserved from profits to cover potential future costs or losses and are recorded as expenses in accounting.

Regional Financial Companies Hit Hard by COVID-19

The core affiliate of DGB Financial, DGB Daegu Bank, posted poor results. Daegu Bank's net income recorded 138.7 billion KRW, down 22.1% (178.2 billion KRW) from the same period last year. DGB Financial explained, "The main reasons are the reduction in interest income due to the sharp decline in market interest rates since the second half of last year and the proactive establishment of loan loss provisions reflecting a conservative outlook on the future economy."

BNK Financial Group, which announced its earnings earlier, was also hampered by provisions related to COVID-19. BNK Financial posted a net income of 310.9 billion KRW in the first half, down 11.5% from 351.2 billion KRW in the same period last year. BNK Financial also set aside 25.5 billion KRW in provisions in the second quarter related to COVID-19 and an additional 11.6 billion KRW for Lime Asset Management funds.

The core banking affiliates also saw a decline in performance. Both Busan Bank and Gyeongnam Bank experienced decreases in net income. Busan Bank earned 178.1 billion KRW, down 20.0% from 222.7 billion KRW in the same period last year. Gyeongnam Bank posted a net income of 104.6 billion KRW, down 13.1% from 120.4 billion KRW last year.

JB Financial Group recorded a net income of 188.2 billion KRW, down 7.8% compared to the same period last year. Its affiliates, Jeonbuk Bank and Gwangju Bank, earned 63.6 billion KRW (-15.3%) and 85.8 billion KRW (-6.2%), respectively. JB Financial set aside 15 billion KRW in provisions in the second quarter.

A financial sector official said, "The spread of COVID-19 has slowed the local economy, and with ultra-low interest rates causing net interest margins (NIM) to decline, the management environment for regional financial companies is deteriorating."

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