Last Year, Non-Bank Sector Drove Financial Holding Companies' Performance... Outlook Gloomy This Year

Outlook for Asset Markets Gloomy Amid Impact of Interest Rate Hikes and More

[Asia Economy Reporter Yu Je-hoon] Last year, major domestic financial holding companies recorded a record high net profit of over 16 trillion won, with securities, card, and capital sectors playing a leading role. However, this year, due to the downturn in asset markets and rising interest rates, the non-bank sectors are expected to continue facing a decline.

According to the financial industry on the 18th, the contribution of non-bank sectors to net profit of the five major domestic financial holding companies (KB, Shinhan, Woori, Hana, NH Nonghyup) increased by 0.8 to 9.2 percentage points (p) for each company last year. KB Financial and Shinhan Financial saw their non-bank net profit contributions rise by 8.3%p and 0.8%p to 42.6% and 42.1%, respectively. Hana Financial increased by 1.4%p to 35.7%, and Nonghyup Financial rose by 9.2%p to 34.6%.

Along with growth in their core banking sectors, it was naturally the non-bank sectors that drove the improvement in financial holding companies’ performance. First, the securities investment boom, known as the ‘Donghak and Seohak Ant Movement,’ significantly improved the performance of securities affiliates of financial holding companies.

NH Investment & Securities recorded a net profit of 931.5 billion won last year, a 61.5% increase compared to the previous year. Arithmetically, this exceeds 40% of Nonghyup Financial’s total net profit (2.2919 trillion won). Additionally, KB Securities, Shinhan Financial Investment, and Hana Financial Investment also showed strong growth, with net profits ranging from 320.8 billion to 594.3 billion won, growing between 23% and 107%.

Credit-specialized financial companies affiliated with financial holding companies, such as card and capital firms, also posted strong results. This was due to borrowers turning to card loans amid social distancing measures caused by the COVID-19 pandemic and bank loan regulations. Shinhan Card and KB Kookmin Card, ranked first and third in the industry, recorded net profits of 675 billion won and 418.9 billion won, up 11.3% and 29%, respectively. Hana and Woori Cards also showed high growth rates exceeding 60%.

The problem is that the outlook for these non-bank sectors, which drove last year’s financial holding companies’ performance improvements, is not promising this year. In the securities industry, investment sentiment is rapidly freezing due to the global tightening trend. According to a recent report by Kiwoom Securities, the average daily trading volume in the domestic stock market in January decreased by 2.3% compared to the previous month, and overseas stock trading volume fell by 9.4%. The decline in trading volume has continued for three months since November last year.

Credit-specialized financial companies are also facing difficulties. In the card industry, in addition to fee reductions, the Debt Service Ratio (DSR) regulation has been applied from this year, making it inevitable to see a deterioration in performance from card loans, which had been a source of revenue. Furthermore, with the base interest rate hike, market interest rates have risen, increasing funding costs.

Kiwoom Securities stated regarding the outlook for financial holding companies’ non-bank sectors this year, "Due to the downturn in asset markets such as the stock market, the performance of non-bank sectors including securities, card, and capital is expected to be worse than last year." They added, "This year, bank holding companies with a lower proportion of non-bank sectors may have an advantage."

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