Financial Holding Companies Report H1 Net Profit of 7.63 Trillion Won, Down 11.0% YoY Due to "COVID-19 Impact"

Financial Supervisory Service Announces 2020 First Half Financial Holding Companies' Performance
Financial Holding Companies' First Half Net Profit Decreases by 11% Compared to Previous Year
Due to COVID-19 Impact, Non-Performing Loans Cleared and Loan Loss Provisions Set Aside

[Asia Economy Reporter Kangwook Cho] The net profit of financial holding companies in the first half of this year decreased by more than 10% compared to the previous year. This is attributed to the active disposal of non-performing loans and the accumulation of loan loss provisions in preparation for economic uncertainties caused by the COVID-19 pandemic.

According to the "2020 First Half Financial Holding Companies' Management Performance" report released by the Financial Supervisory Service on the 15th, the consolidated net income of all 10 financial holding companies including KB, Shinhan, Nonghyup, Woori, Hana, BNK, DGB, JB, Korea Investment & Securities, and Meritz amounted to 7.6262 trillion KRW in the first half of this year, down 11% (943 billion KRW) from 8.5692 trillion KRW in the same period last year.

By sector, banks saw a 14.1% (895.1 billion KRW) decrease, and financial investment firms experienced a 29.1% (518.8 billion KRW) decline, while insurance companies increased by 26.9% (158.2 billion KRW) and credit finance companies rose by 25% (254.2 billion KRW). The decrease in the banking sector is attributed to the impact of loan loss provision accumulation, and the decline in the financial investment sector is due to reduced gains from proprietary trading and fund-related profits. The profit share by subsidiary sector is banks (61.5%), credit finance companies, etc. (14.3%), financial investment (14.2%), and insurance (8.4%).

The total consolidated assets of all financial holding companies reached 2,822.7 trillion KRW, up 7.4% (194.1 trillion KRW) from 2,628.6 trillion KRW at the end of the previous year. By sector, banks increased by 128.6 trillion KRW (6.5%), financial investment by 48.3 trillion KRW (18.9%), insurance by 8.2 trillion KRW (3.7%), and credit finance companies, etc. by 10.3 trillion KRW (7.1%).

In the banking sector, the increase was mainly due to the growth in loan receivables, while in the financial investment sector, it was primarily due to increased holdings of securities and cash/deposits related to securities trading.

The asset proportion of subsidiaries by sector relative to the total assets of financial holding groups was 74.8% for banks, 10.8% for financial investment, 8.1% for insurance, and 5.5% for credit finance companies, etc.

The total capital, core capital, and common equity tier 1 capital ratios of bank holding companies were recorded at 13.70%, 12.27%, and 11.19%, respectively. These capital ratios increased by 0.16 percentage points, 0.17 percentage points, and 0.09 percentage points compared to the end of the previous year. This was mainly due to Woori Financial Group's approval of the internal ratings-based approach and JB Financial Group's implementation of the Basel III final rules. Additionally, these ratios were significantly higher than the regulatory minimums (total capital ratio 11.5%, core capital ratio 9.5%, common equity tier 1 capital ratio 8.0%), indicating a sound level.

Banks Accumulate COVID-19 Provisions... Financial Holding Companies’ Net Profit Declines

As of the end of June, the non-performing loan ratio of financial holding companies was 0.55%, down 0.03 percentage points from 0.58% at the end of the previous year. The loan loss provision coverage ratio was 128.62%, up 5.33 percentage points from 123.29% at the end of the previous year. The loan loss provision coverage ratio (total loan loss provisions/non-performing loans) is an indicator used to assess credit loss absorption capacity.

This is interpreted as resulting from bank holding companies actively disposing of non-performing loans and accumulating loan loss provisions in preparation for economic uncertainties such as COVID-19.

The debt ratio was 29.05%, up 0.01 percentage points from 29.04% at the end of the previous year, while the double leverage ratio was 118.69%, down 1.57 percentage points from 120.26% at the end of the previous year. The double leverage ratio (total investments in subsidiaries/total capital) is also used as an indicator of subsidiary investment capacity and is generally managed below 130% (quantitative evaluation grade 2).

In general, the number of subsidiaries and affiliated companies under the 10 financial holding companies was 250, the number of branches was 8,775, and the number of employees was 162,417. Compared to the end of the previous year, the number of affiliated companies increased by 7, branches by 155, and employees by 8,275. This is mainly attributed to the inclusion of Cambodia’s Prasac Bank under KB Financial Group.

A Financial Supervisory Service official evaluated, "Although the assets of financial holding groups increased compared to the end of the previous year due to loan expansion in the first half of this year, net income for the first half of 2020 was sluggish compared to the same period last year as loan loss provisions were expanded in consideration of uncertainties caused by COVID-19."

He added, "While financial holding companies continue to manage asset soundness, they will be guided to maintain their role in supplying funds to the real economy such as self-employed and small and medium-sized enterprises, and to strengthen loss absorption capacity through sufficient loan loss provision accumulation, capital expansion, and internal reserves in preparation for uncertainties such as the resurgence of COVID-19."

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