"Tightening Loans Is Okay"... Financial Holding Companies' Q3 Earnings Also Look Rosy

Net Profit of 4 Major Financial Holding Companies Estimated to Increase by 8.8% to KRW 3.8651 Trillion

[Asia Economy Reporter Park Sun-mi] Domestic financial holding companies are expected to achieve record-high earnings again in the third quarter of this year, despite the continued spread of COVID-19. Although there is tightening of loans due to strengthened total household loan management, the average loan balance has already increased significantly, and the margin expansion caused by rising market interest rates is also contributing.

According to the financial sector on the 6th, the net profit of the four major financial holding companies in the first quarter of this year is estimated to be around 3.8651 trillion KRW, an 8.8% increase from 3.5499 trillion KRW in the same period last year. The market consensus for the net profit attributable to controlling shareholders of the four major financial holding companies, compiled by financial information provider FnGuide, is ▲ KB Financial 1.2038 trillion KRW ▲ Shinhan Financial 1.1363 trillion KRW ▲ Hana Financial 852.5 billion KRW ▲ Woori Financial 672.5 billion KRW, respectively.

KB Financial faced a challenging environment for a significant increase in net profit growth in the third quarter this year, as 145 billion KRW of bargain purchase gains related to the acquisition of Prudential Life were reflected in the third quarter of last year. However, with a 3.19% growth rate, it is widely expected that the third-quarter net profit will also surpass 1.2 trillion KRW, following the first and second quarters.

Shinhan Financial, which exceeded 1 trillion KRW in quarterly net profit for the first time in its history in the third quarter of last year, is also expected to achieve net profit exceeding 1 trillion KRW in the third quarter this year. If this continues, both KB Financial and Shinhan Financial are expected to easily surpass 4 trillion KRW in total net profit for the year for the first time.

Hana Financial and Woori Financial are expected to see double-digit net profit growth rates in the third quarter. In particular, Woori Financial, which has a higher proportion of banking compared to other financial holding companies, is estimated to see about a 40% increase in net profit compared to the same period last year due to a sharp rise in interest income from increased loan interest rates and recognition of 70 billion KRW in equity method valuation gains related to K Bank's capital increase.

Despite the reduction of credit loan and overdraft limits to within annual income and 50 million KRW respectively, and the suspension and reduction of new real estate mortgage loan limits, household loans continue to increase. The household loan balance of the four major banks stood at about 567.35 trillion KRW at the end of the third quarter, nearly 12 trillion KRW higher than 555.4823 trillion KRW at the end of the second quarter. Rather, the rise in loan interest rates, which is inevitable for household debt management, creates an environment where banks' net interest income must continue to increase.

Since mid-September, the effect of rising loan interest rates due to the base rate hike has been occurring, and the liquidity coverage ratio (LCR) relaxation (from 100% to 85%) has been extended again, increasing the possibility of further improvement in net interest margin (NIM). Also, although loan maturity extensions and principal and interest repayment deferral programs for small and medium-sized enterprises and small business owners are ongoing, the possibility of large-scale losses is low due to the COVID-19 related provisions accumulated last year.

The launch of internet-only banks such as Toss Bank is not a threat to the performance of commercial banks. The mid-interest rate loan customers that Toss Bank aims to secure are not the main targets of existing commercial banks, and there is no reason for competition in high-credit loans amid the current atmosphere of strengthened household debt management.

Baek Doo-san, a researcher at Korea Investment & Securities, said, "The third-quarter performance should focus on the base rate hike rather than household debt management," adding, "Considering the base rate hikes that will not be one-time, and the mismatch between borrowing demand and total loan management, the upward trend in NIM is expected to continue at least until next year."

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