Banks Taking a Breather in 4Q... Base Rate Hike Effects Start This Year

4Q Off-Season Leads to Slight Slowdown
Base Rate Hike Expected to Continue... Optimism for Earnings Growth

[Asia Economy Reporter Minwoo Lee] The controlling shareholders' net profit of major financial holding companies such as KB, Shinhan, Woori, and Hana in the fourth quarter of last year is expected to be around 2.16 trillion KRW. Although somewhat sluggish compared to the previous quarter, it continues an upward trend compared to the same period last year. Since the base interest rate hikes began at the end of last year, the performance growth is expected to continue this year.

According to financial information analysis firm FnGuide on the 31st, the market consensus for the controlling shareholders' net profit on a consolidated basis for the fourth quarter of last year for the four companies?KB Financial Group, Shinhan Financial Group, Woori Financial Group, and Hana Financial Group?is 2.1587 trillion KRW. This represents a 47.6% decrease from the previous quarter but is estimated to be about 24% higher than the fourth quarter of 2020.

First, costs related to large-scale voluntary retirements at banks and some subsidiaries are expected to be added in the fourth quarter of last year. For major banks, these costs are estimated to be around 10 billion to 200 billion KRW per bank. In addition to their own conservative reserve provisions, the scale of loan loss provisions is expected to be larger than initially anticipated due to additional reserve pressure from regulatory authorities. In the case of Shinhan Financial Group, additional provisions related to the Lime private equity fund incident are expected to be reflected through the fourth quarter of last year. Hana Financial Group is expected to show relatively better performance as voluntary retirement costs were deferred to the first quarter of this year.

Loans are expected to slow down slightly, increasing by about 1% compared to the previous quarter. Suhyun Kim, a researcher at Shinhan Investment Corp., explained, "The loan growth rate is expected to slow due to the effect of loan repayments by companies managing their debt ratios at year-end and the effect of loan sales and transfers by banks," adding, "A slowdown in growth rates is also expected due to household loan window guidance."

The effect of base interest rate hikes is expected to fully materialize going forward. The impact of the two hikes in August and November last year is expected to be reflected immediately in the fourth quarter performance of last year. The increase in quarterly net interest margin (NIM) per bank last year is estimated to be an average of 5 to 6 basis points (bp; 1bp = 0.01%P) compared to the previous quarter. Hana, Woori, and IBK are expected to increase by more than 5 to 6bp, while KB, which has lower interest rate sensitivity, is expected to increase by 2bp.

With the Bank of Korea raising the base interest rate again in January this year to 1.25%, the annual NIM is expected to increase by about 3 to 4bp. Researcher Kim said, "The effect of the November rate hike last year will last until the first half of this year at the latest," and added, "Considering the possibility of additional base rate hikes, banks' NIM is expected to rise within the range of about 5 to 9bp this year."

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