Financial Holding Companies Face Regulatory Headwinds Despite Forecasted First-Quarter Profit Surge

Strong Performance by Non-Banking Subsidiaries Such as Securities Firms
Banks Also Benefit from Net Interest Margin Recovery Driven by Rising Interest Rates

[Asia Economy, reporter Park Sunmi] Domestic financial holding companies are expected to continue their record-breaking profit streak in the first quarter of this year. This is due to the ongoing trend of "debt-fueled investing" (investing with borrowed money), which has led to strong performances by non-banking subsidiaries, as well as banks benefiting from a recovery in net interest margin (NIM) driven by rising interest rates. However, the financial sector is under pressure from politicians to participate in profit-sharing schemes, and with the announcement of strengthened household debt management measures scheduled for later this month, financial holding companies remain anxious despite the prospect of record-high earnings.

Strong Performance by Financial Holding Companies... Combined Net Profit of the Big Four Expected to Rise 15%

According to the financial sector on April 6, the combined net profit of the four major financial holding companies in the first quarter of this year is projected to reach 3.2428 trillion won, well above 3 trillion won, representing an increase of about 15% compared to 2.8371 trillion won in the same period last year. Market consensus (compiled by financial information provider FnGuide) for first-quarter net profit attributable to controlling shareholders is as follows: Shinhan Financial Group at 1.0368 trillion won, KB Financial Group at 1.0237 trillion won, Hana Financial Group at 695.5 billion won, and Woori Financial Group at 486.8 billion won.

Only Woori Financial Group is expected to see a 6.06% decrease in net profit compared to the same period last year, while Shinhan, KB, and Hana are projected to post increases of 11.20%, 40.33%, and 5.86%, respectively. The combined operating profit of the four major financial holding companies is also estimated to approach 4.5 trillion won, more than 10% higher than the 3.9488 trillion won recorded in the first quarter of last year. In particular, Shinhan and KB, which are competing for the leading bank position, are expected to see operating profit growth rates of 14.78% and 33.32%, respectively, signaling strong performance.

The strong first-quarter results are being driven not only by the continued stock market boom since last year, which has benefited non-banking subsidiaries such as securities firms, but also by improved profitability among banks. Previously, banks were unable to fully capitalize on loan growth due to the low interest rate environment, but now, thanks to high loan growth rates and rising NIM, net interest income has improved significantly. Furthermore, with almost no additional provisioning required in the first quarter, credit loss costs are also expected to decrease.

Choi Jungwook, a researcher at Hana Financial Investment, said, "Corporate loans from banks have been steadily increasing, and household loans-especially for jeonse and unsecured loans-are also on the rise. As a result, the average loan growth rate for banks in the first quarter is expected to exceed 2.0%. With this continued loan growth, the average bank NIM in the first quarter is projected to rise by more than 0.04 percentage points, marking a turnaround after 12 quarters."

Financial Holding Companies Facing Strong Results, but Also Tighter Regulations

Despite the forecast of strong first-quarter results, financial holding companies cannot afford to be complacent.

The financial authorities are proceeding with disciplinary measures against executives in connection with the private equity fund scandal, and the implementation of the Financial Consumer Protection Act has made product sales by financial companies even more stringent. Due to concerns about excessive "Yeongkeul" (maxing out all resources) and "debt-fueled investing," the government is set to announce advanced household loan regulations later this month. In addition, with the revision of the People's Finance Act coming in July, the financial sector's annual contribution to policy-based microfinance will increase to 200 billion won per year, totaling 1 trillion won over the next five years. Separately, the government and political circles are also pressuring the financial sector to participate in profit-sharing schemes.

While banks are subject to tighter regulations, the entry of big tech (large information technology companies) into the financial sector is also threatening the traditional business of banks, posing another challenge for financial holding companies. In response, financial holding companies are calling for regulatory changes to allow them to independently establish internet-only banks. Recently, the Korea Federation of Banks surveyed financial holding companies regarding their demand for establishing internet-only banks, and plans to soon share the results with financial authorities for further discussion.

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