Banks Achieve 'Record High Performance' Last Year Amid Rising Loan Rates... "This Year Looks Good Too" (Comprehensive)

Under This Year's Interest Rate Hike Trend, Strong Performance of the Four Major Financial Groups Is Expected to Continue

[Asia Economy Reporter Park Sun-mi] The four major financial holding companies are expected to break their record-high earnings, benefiting from the COVID-19 rebound effect. This is largely due to a significant increase in interest income from the surge in household loans. With the Bank of Korea also signaling further base rate hikes 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 posted a net profit of 4.4613 trillion KRW last year, 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 the first time its annual earnings surpassed 3 trillion KRW. Woori Financial is expected to show the largest growth among the four, 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 implemented last year and the government and regulatory authorities’ strengthened management of household loans, which caused loan interest rates to surge and improved bank profitability. Despite tightened loan regulations, loan growth continued, and loan interest rates rose, significantly widening the interest rate spread between deposits and loans at domestic banks. Securities, insurance, and card companies 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 amid this year’s rate hike trend, with an additional base rate increase expected as soon as this week.

Continued Profit and NIM Growth in Banking Sector Due to Rate Hikes

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

In the stock market, expectations that bank earnings will improve further amid the full-fledged 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 regained its position as the ‘financial leader’ with a market capitalization of 25.3227 trillion KRW (as of 9:30 AM that day), reclaiming the spot from KakaoBank (23.8055 trillion KRW) after about six months.

Meanwhile, the record earnings in the banking sector have led to a bonus windfall for employees. Woori Bank’s labor and management agreed through wage and collective bargaining to pay a ‘management performance bonus equivalent to 200% of the base salary.’ Additionally, to boost employee morale, an extra 1 million KRW on top of 100% of the base salary is added, effectively resulting in performance bonuses exceeding 300% of the base salary. Employees at Kookmin, Shinhan, and Hana banks also receive performance bonuses amounting to 300% of their base salary.

Expectations for dividend policies are also high. Financial holding companies restrained dividends in 2020 following regulatory recommendations to limit dividends to within 20%, but have been actively pursuing 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 size, internet-only banks are receiving higher market valuations than leading financial groups."

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