4 Major Financial Holding Companies Expected to Post 'Record High' 2Q Earnings... Caution Amid COVID Resurgence

Profitability Improvement Due to Market Interest Rate Increase
Also Benefiting from Base Effect of Loan Loss Provisions

[Asia Economy Reporter Kwangho Lee] The four major financial groups?KB, Shinhan, Hana, and Woori?are expected to record their highest-ever earnings again in the second quarter. This marks consecutive quarters of strong performance following the first quarter. The improvement in profitability is attributed to rising market interest rates, along with a base effect from the substantial loan loss provisions set aside last year due to the COVID-19 pandemic. While the possibility of the four major financial groups simultaneously issuing interim dividends for the first time ever has increased, concerns over the fourth wave of COVID-19 have led to cautious monitoring of the situation.

Will KB and Shinhan Achieve Record High Earnings in 2Q? Woori’s Earnings Surge 201% YoY

According to the financial sector on the 13th, starting with Woori Financial on the 21st, KB, Shinhan, and Hana Financial will sequentially announce their second-quarter earnings. Financial holding companies that recorded their highest-ever earnings in the first quarter are expected to achieve remarkable results again in the second quarter.

According to financial information provider FnGuide, KB Financial’s consensus net profit forecast for the second quarter is estimated at 1.181 trillion KRW, an increase of 188.5 billion KRW (19%) compared to the same period last year. Shinhan Financial is expected to post 1.0952 trillion KRW, up 202.5 billion KRW (23%) from the same period last year. If market estimates prove accurate, KB and Shinhan Financial will achieve their highest-ever quarterly earnings in the second quarter.

During the same period, Hana Financial’s net profit is predicted to increase by 163.7 billion KRW (24%) year-on-year to 859 billion KRW. Notably, Woori Financial’s performance stands out. Woori Financial is expected to achieve a net profit of 652 billion KRW, representing a 201% surge compared to the same period last year.

The reason for the expected significant increase in the financial groups’ net profits is the rise in market interest rates, which has led to an upward trend in the banks’ net interest margin (NIM), a key profitability indicator. As of the end of the first quarter, the average NIM of the four major banks was 1.42%, up 0.06 percentage points from the end of last year. The second quarter is also expected to see an increase from the first quarter, ranging approximately from 1.37% to 1.58%.

The base effect from the large-scale loan loss provisions accumulated in preparation for the spread of COVID-19 also played a role. Last year, each financial group significantly increased their loan loss provisions in the second quarter, greatly reducing the burden of loan loss expenses in the second quarter this year.

Hana Financial Investment forecasted that Woori Bank’s loan loss write-offs in the second quarter would decrease the most, by 66% (116 billion KRW) compared to the same period last year, followed by Hana Bank at 65% (150 billion KRW), Shinhan Bank at 38% (335 billion KRW), and KB Kookmin Bank at 18% (244 billion KRW).

High Possibility of Interim Dividends Amid Strong Earnings... Increased Volatility Due to COVID-19 Resurgence

With strong earnings expected, there is a prevailing view that the four major financial groups could simultaneously issue interim dividends. The financial authorities lifted the 20% dividend payout ratio limit for financial companies at the end of last month, and with the first half’s record earnings virtually assured, active shareholder return policies can be pursued.

Hana Financial decided to close its shareholder registry for interim dividends on the 15th of last month, and Woori Financial also held a board meeting on the 2nd to decide on closing the shareholder registry for interim dividends. The announcement of shareholder registry closure is generally regarded in the market as a preliminary step for dividends. KB Financial and Shinhan Financial can issue dividends with just board approval according to their articles of incorporation.

Despite strong first-half earnings, the resurgence of COVID-19 has increased volatility in the financial markets in the second half, which is expected to be a variable affecting future performance.

On the same day, Deputy Minister of Strategy and Finance, Eokwon Lee, stated at the macroeconomic and financial meeting, "Recently, concerns over the slowdown in economic recovery due to the spread of variant viruses and expectations for corporate earnings improvement have conflicted, increasing stock price volatility. Additionally, U.S. Treasury yields have fallen to their lowest levels since the end of February, and overall volatility in international financial markets has somewhat expanded."

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