The Four Major Financial Groups Achieved 'Record High Performance' Last Year Amid Rising Loan Interest Rates

KB·Shinhan '4 Trillion Club'
Woori Financial Forecasts 89% Net Profit Growth

[Asia Economy Reporter Park Sun-mi] The four major financial holding companies are expected to break their record-high earnings due to the COVID-19 rebound effect. This is largely influenced by the significant increase in interest income from the surge in household loans. With the Bank of Korea also signaling a base rate hike this year, the prevailing outlook is that the earnings bonanza driven by the interest rate spread between deposits and loans will continue.

According to financial information provider FnGuide on the 12th, the combined net profit of the four major financial holding companies?KB, Shinhan, Hana, and Woori?last year is estimated to have increased by more than 30% from the previous year to 14.3462 trillion KRW. In particular, KB and Shinhan, which are competing for the position of ‘leading bank,’ are about to announce earnings exceeding 4 trillion KRW for the first time ever.

KB Financial’s net profit last year was 4.4613 trillion KRW, up 29% from the previous year, securing the top spot. Shinhan Financial followed with 4.1475 trillion KRW, a 21.46% increase. Hana Financial’s net profit is estimated to have increased by 23.62%, marking its first annual earnings exceeding 3 trillion KRW. Woori Financial is expected to show the largest growth among the four major financial groups, with net profit rising 89.5% to 2.4773 trillion KRW.

The record-high earnings forecast for the four major financial groups is influenced by the two base rate hikes last year and the government and authorities’ strengthened household loan management, which caused loan interest rates to surge and improved bank profitability. Despite tightened loan regulations, the loan growth trend continued, and with rising loan interest rates, the interest rate spread between deposits and loans at domestic banks has widened significantly. Securities, insurance, and card companies outside the banking sector also saw improved earnings due to the COVID-19 rebound effect.

Industry insiders expect the strong performance of the four major financial holding companies to continue this year amid the ongoing trend of interest rate hikes, with an additional base rate increase expected as soon as this week.

Kim Su-hyun, a researcher at Shinhan Financial Investment, said, "During a period of interest rate hikes accompanied by economic recovery, banks with a high proportion of variable-rate loans tend to have relatively stronger fundamentals." He added, "Generally, the fourth quarter is an off-season for earnings due to voluntary retirements and temporary provisions, but last year’s fourth quarter is expected to see a reversal with net interest margin (NIM) rising by more than 3 to 4 basis points, indicating solid growth. The first quarter of this year is also expected to see continued profit and NIM increases in the banking sector."

In the stock market, expectations that bank earnings will improve further amid the full-fledged interest rate hike environment are reflected in rising stock prices. Although the KOSPI has shown a sluggish trend, falling compared to the beginning of the year, the stock prices of the four major financial holding companies have risen by double digits. KB Financial’s market capitalization reached 25.3227 trillion KRW (as of 9:30 AM that day), reclaiming its position as the ‘financial leader’ from KakaoBank (23.8055 trillion KRW) after about six months.

Meanwhile, as signals of record-high earnings become clearer, expectations for financial holding companies’ dividend policies are also rising. Following the authorities’ recommendation to limit dividends to within 20%, financial holding companies refrained from paying dividends in 2020 as much as possible but have been proactive with dividend policies since the restrictions were lifted last year. KB Financial Chairman Yoon Jong-kyu said in his New Year’s address this year, "Despite significant gaps in asset and profit scale, internet-only banks are receiving higher market evaluations than leading financial groups."

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