Financial Holding Companies Forecast Record 2Q Earnings... Caution Over COVID-19 Resurgence (Comprehensive)

Improved Profitability from Rising Market Interest Rates... Base Effect of Loan Loss Provisions Also Contributes

[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 and the base effect from significantly increased loan loss provisions 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 has increased, concerns over the fourth wave of COVID-19 have led to cautious monitoring of the situation.

According to the financial sector on the 13th, starting with Woori Financial on the 21st, KB, Shinhan, and Hana Financial will consecutively announce their second-quarter earnings. Financial holding companies that recorded record-breaking 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 are accurate, KB and Shinhan Financial will achieve their highest-ever quarterly earnings in the second quarter.

KB and Shinhan Expected to Achieve Record High Earnings in Q2

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, a staggering 201% increase compared to the same period last year.

The reason for the significant increase in the financial groups' net profits is the rising market interest rates, which have led to an upward trend in the net interest margin (NIM), a key profitability indicator for banks. 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%.

Kiwoom Securities expects KB Kookmin Bank's NIM in the second quarter to rise by 8 basis points (bp) compared to the same period last year (1bp = 0.01%). Daishin Securities analyzed that Shinhan Bank and Woori Bank's NIMs will each increase by 2bp, while eBest Investment & Securities forecasts Hana Bank's NIM to rise by 6bp.

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 loan loss provisions in the second quarter, greatly reducing loan loss expenses in the second quarter this year.

Hana Financial Investment expects Woori Bank's loan loss write-offs in the second quarter to 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).

With strong earnings expected, the prospect of simultaneous interim dividends by the four major financial groups is gaining traction. The financial authorities ended the 20% dividend payout ratio limit for financial companies at the end of last month, and with the first half's record earnings assured, aggressive shareholder return policies can be implemented.

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 board approval alone according to their articles of incorporation.

Increased Financial Market Volatility... Future Earnings Variables

Despite strong first-half earnings, concerns over the resurgence of COVID-19 and increased financial market volatility in the second half are expected to act as variables affecting future earnings.

On the same day, Deputy Minister of Strategy and Finance, Lee Okwon, stated at the Macroeconomic and Financial Meeting, "Recently, volatility in stock prices has increased due to mixed sentiments between concerns over the slowdown in economic recovery caused by the spread of variant viruses and expectations for corporate earnings improvement. Additionally, U.S. Treasury yields have fallen to their lowest levels since the end of February, indicating an overall expansion in international financial market volatility."

A financial group official said, "We are closely monitoring the fourth wave of COVID-19. However, since we have announced an active shareholder return policy, the interim dividends are planned to proceed as scheduled."

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