The Four Major Financial Holding Companies' Annual Net Profit Exceeds 15 Trillion Won

[Asia Economy Reporter Song Hwajeong] The net profit of the four major financial holding companies is expected to surpass 15 trillion won this year.

According to NH Investment & Securities on the 1st, the combined net profit of the four major financial holding companies?KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group?recorded 14.232 trillion won in 2021 and 15.023 trillion won in 2022, and is expected to achieve record-high profits for the second consecutive year.

The biggest reason for the banks' strong performance is the improvement in profitability due to rising interest rates. Since the beginning of this year, domestic and international interest rates have shown a strong upward trend. The Federal Reserve's (Fed) interest rate hikes and widespread inflationary pressures are reflected in rising interest rates. Junseop Jeong, a researcher at NH Investment & Securities, explained, "Interest rate increases are reflected in both loan interest rates and funding costs (deposit interest rates), but generally, loan interest rates are reflected first and more significantly," adding, "This is why net interest margin (NIM) typically improves when interest rates rise."

NIM began to rebound again from the fourth quarter after a temporary stagnation in the third quarter of last year. Researcher Jeong analyzed, "The NIM of the four major commercial banks in the fourth quarter of 2021 is estimated to have risen by about 3 to 6 basis points compared to the third quarter, supported by the increase in loan interest rates," and added, "The rise in loan interest rates in the fourth quarter was influenced by the base rate hike in August last year and the increase in spread rates due to the financial authorities' strengthening of household debt regulations."

This upward trend in NIM is expected to continue at least through the first half of this year. The Bank of Korea raised the base rate three times in August and November last year and January this year, and the improvement in NIM in the fourth quarter of last year was mostly due to the August rate hike. Researcher Jeong said, "The base rate hikes in November last year and January this year are also expected to be gradually reflected in loan interest rates with a certain time lag. Considering this, NIM is expected to maintain a favorable trend at least until the first half of this year," and added, "Moreover, if there is an additional base rate hike in the second half of this year, further improvement in NIM can be expected in the latter half as well."

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