Financial Holding Companies, The Era When Banks Supported Them Is Over (Comprehensive)

Synergy Among Banks, Securities, Insurance, and Card Sectors Gains Importance Amid Prolonged Ultra-Low Interest Rates
Non-Bank Sector Profit Share Soars

[Asia Economy Reporter Park Sun-mi] As synergy among financial sectors such as banks, securities, insurance, and cards becomes increasingly important in the ultra-low interest rate era, the notion that bank performance leads the financial holding companies has become a thing of the past. With it becoming clear that the stronger the non-bank affiliate portfolio in the first quarter of this year, the better the overall performance of the holding company, the diversification efforts of the four major financial holding companies toward non-bank sectors are expected to accelerate further.

According to the financial sector on the 29th, the profit share of the non-bank sector in the first quarter results of the four major financial holding companies this year increased significantly compared to a year ago. The company with the largest non-bank sector share was KB Financial Group at 48.6%, followed closely by Shinhan Financial Group at 48.1%. Nearly half of the two holding companies’ profits come from non-bank sectors. Hana Financial Group and Woori Financial Group recorded 39.9% and 18.6%, respectively.

During this period, KB Financial Group’s non-bank profit share rose by 22.4 percentage points compared to the same period last year, while Shinhan, Hana, and Woori also increased by 13.6, 14.1, and 6 percentage points, respectively. The rising share of non-bank affiliates in total profits has become a common trend across the financial industry.

This aligns with the financial sector trend where, due to the low interest rate environment, increasing fee income contributed by non-bank affiliates has become more important than interest income, which is the largest contributor from banks in the overall profit structure of financial holding companies.

In the case of KB Financial Group, which posted record quarterly profits, net interest income increased by 12.5% compared to a year ago, while net fee income surged by 44.3%. The share of non-bank sectors in net fee income expanded from 57.7% in the first quarter of last year to 67.4% in the same period this year. This clearly reflects the fruits of business portfolio diversification through mergers and acquisitions (M&A).

Shinhan Financial Group also saw bank-centered interest income rise by 5.7% year-on-year, while non-interest income from cards, securities, and capital businesses increased by 40.4%. Woori Financial Group, which lacks securities and insurance sectors, showed relatively weaker non-bank portfolios; its interest income grew by 10.7%, whereas non-interest income increased by only 16.9%.

Growing Importance of Non-Bank Portfolios

The breakdown of traditional financial sector boundaries has also played a role in dispersing profit contributions from banks to non-bank affiliates. Currently, the financial industry is shifting from operating separate branches by sector?banks, securities, insurance?to increasing the operation of integrated financial branches where customers can manage their assets all at once. For example, a combined bank and securities branch prevents bank customers from moving to nearby other securities firms to subscribe to investment products and connects bank customers to non-bank affiliates under the same brand.

As customer demand grows for comprehensive management of different asset types in one place, it has become important for financial companies to strengthen their non-bank portfolios and create synergy across sectors.

Shinhan Financial Group Chairman Cho Yong-byeong’s establishment of the group’s mid-term strategy ‘Fresh 2020s’ last year, emphasizing growth centered on non-interest, non-bank, and matrix businesses, is based on this background. KB Financial Group Chairman Yoon Jong-kyu is also aiming beyond strengthening non-bank portfolios through M&A to enhancing the group’s non-financial businesses by growing non-financial platforms such as automotive, real estate, healthcare, and telecommunications.

The financial industry expects the low interest rate environment to continue for the time being, limiting profits from bank net interest margins, so efforts to improve non-bank portfolios to boost the performance of non-bank sectors will continue. A banking official said, "Banks used to be the ‘flower’ of financial groups, but now the financial group’s performance depends on how much non-bank affiliates advance. In the future, efforts to improve weak non-bank portfolios by each financial holding company will become active, and competition for M&A will intensify during this process."

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