The Four Major Financial Groups' 'Joy and Sorrow'... Despite Record-Breaking Earnings, Financial Authorities 'Tread Carefully'

KB Financial Tops Shinhan Financial to Reclaim 'Leading Group' Title After 3 Years
Non-Bank Sectors Like Securities and Insurance Drive Performance Beyond Banking
Record Earnings Despite Dividend Cuts...Management Faces Severe Disciplinary Notice

[Asia Economy Reporter Kwangho Lee] Except for Woori Financial Group, KB Financial Group, Shinhan Financial Group, and Hana Financial Group achieved record-breaking earnings. Despite the historic results, the financial groups' expressions are not bright. There are numerous issues to resolve, including the financial authorities' recommendation to reduce dividends and notifications of sanctions against management.

According to the financial sector on the 6th, Shinhan, Hana, and Woori Financial announced their last year's earnings on the 5th, following KB Financial on the 4th.

Shinhan Financial recorded a net profit of 3.4146 trillion KRW last year, a slight increase of 0.3% compared to the previous year (3.4035 trillion KRW). It achieved the '3 trillion club' for three consecutive years with its best-ever performance.

However, Shinhan Financial's net profit in the fourth quarter of last year (464.4 billion KRW) decreased by 59.4% compared to the previous quarter. One-time expenses such as loan loss provisions (187.3 billion KRW) in preparation for COVID-19 and losses from investment products like Lime Fund (267.5 billion KRW) were reflected.

Due to the large provisions, Shinhan Financial lost the 'leading group' position to KB Financial. KB Financial's net profit last year was 3.4552 trillion KRW, 51.7 billion KRW more than Shinhan Financial. Shinhan Financial had maintained the leading bank position for two consecutive years in 2018 and 2019 but was pushed to second place this time.

Hana Financial also posted record earnings. Hana Financial's net profit last year was 2.6372 trillion KRW, an increase of 10.3% (245.7 billion KRW) compared to the previous year.

A Hana Financial official explained, "Despite one-time expenses such as proactive provisions in response to the COVID-19 impact and costs related to private equity funds, the results were due to cost reductions and the strong performance of non-bank sectors."

However, among the four major financial groups, only Woori Financial saw a decrease in net profit. Woori Financial's net profit last year was 1.3073 trillion KRW, down 564.9 billion KRW from the previous year.

A Woori Financial official said, "Last year was a year of steady growth and improved soundness, with proactive cost reserves to prepare for the future. This year will be a year to secure momentum for medium- to long-term development based on a solidified group governance structure in the third year of the holding company transition, as well as a full-fledged earnings turnaround through strengthening sales capabilities and active cost management."

The difference in earnings among financial groups was driven by non-bank sectors such as securities and insurance companies. The core affiliates, banks, saw earnings decline due to increased costs from expanded voluntary retirement and loan loss provisions. Shinhan Bank's net profit last year (2.778 trillion KRW) decreased the most by 10.8% compared to the previous year, followed by Woori Bank (9.4%), Hana Bank (6.1%), and Kookmin Bank (5.8%).

On the other hand, securities firms held by each financial group recorded record earnings due to the stock investment boom. KB Securities posted a net profit of 425.6 billion KRW last year, more than 153% increase from 2019 (167.7 billion KRW). Hana Financial Investment also increased by 46.6% to 410 billion KRW.

Shinhan Financial's non-bank affiliates such as Shinhan Card (606.5 billion KRW), Shinhan Life Insurance (177.8 billion KRW), and Orange Life Insurance (279.3 billion KRW) increased profits by 21.6% compared to the previous year, driving the overall performance.

Despite the record-breaking earnings, the financial groups' expressions are not bright. The Financial Services Commission officially recommended lowering the dividend payout ratio to within 20% as a response to COVID-19, reducing the portion returned to shareholders.

Hana Financial decided on a dividend of 1,350 KRW per share on the day. Including the interim dividend, the total dividend is 1,850 KRW, 16% lower than the previous year. The dividend payout ratio was set at 20%, in line with the Financial Services Commission's recommendation.

KB Financial also decided on a dividend of 1,770 KRW per share, about 20% lower than 2,210 KRW in 2019. Shinhan Financial did not disclose the dividend size in the earnings announcement but is likely to comply with the Financial Services Commission's recommendation. A Shinhan Financial official said, "We will consider the dividend level a bit more before deciding."

Sanctions related to private equity funds by financial authorities also pose a risk. The Financial Supervisory Service pre-notified heavy sanctions to the CEOs of Woori Bank and Shinhan Bank regarding the Lime Asset Management fund incident. Son Tae-seung, chairman of Woori Financial and former Woori Bank president during the Lime incident, was suspended from duty, and Jin Ok-dong, president of Shinhan Bank, received a reprimand warning. Cho Yong-byeong, chairman of Shinhan Financial, also received a pre-notification of a cautionary warning. Hana Financial is also expected to face sanctions related to the Lime Fund against Vice Chairman Ham Young-joo.

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