Despite Earnings Surprises in the Big 4 Banks... Non-Banking Sector Stalls

Growth of Securities and Card Companies Slows Amid Interest Rate Hikes, Regulations, and Weak Asset Markets

[Asia Economy Reporter Yu Je-hoon] The non-bank sector performance of major domestic financial holding companies, which recorded an 'earnings surprise' with a net profit of about 4.6 trillion KRW in the first quarter, showed a somewhat sluggish trend. This is due to the downward or stagnant performance of securities and card businesses, which significantly supported last year's earnings improvement amid the base interest rate hike.

According to the financial sector on the 25th, the growth of major non-bank affiliates of the four major domestic financial holding companies?KB, Shinhan, Hana, and Woori?showed signs of gradual slowdown. In the case of KB Financial Group, both major non-bank subsidiaries, KB Securities and KB Card, saw a decrease in net profit compared to the previous year. In the first quarter of this year, KB Securities posted a net profit of 114.3 billion KRW, down 48.3% year-on-year, and KB Card recorded 118.9 billion KRW, down 16.0%.

Among the major subsidiaries, KB Insurance managed to save face with a net profit of 143.1 billion KRW. This was influenced by a decrease in automobile accident loss ratios due to strengthened social distancing measures amid the COVID-19 pandemic last year.

Other financial groups showed similar trends. Shinhan Financial Group saw net profits decline in Shinhan Investment Corp. (-37.5%) and Shinhan Life Insurance (-15.6%). Shinhan Card posted a 4.7% increase to 175.9 billion KRW, but this was far below the 32.8% net profit growth rate in the first quarter of last year. Additionally, Hana Financial Group continued a sluggish trend with Hana Financial Investment (-12.8%) and Hana Card (-24.7%). NH Financial Group was the only major financial holding company to see an overall net profit decline, due to the continued poor performance of NH Investment & Securities (-60.3%).

Woori Financial Group, which is considered to have a weaker non-bank portfolio compared to other financial groups, showed growth supported by steady increases in Woori Card (18.9%) and Woori Comprehensive Financial Services (17.5%).

The decline in earnings centered on the securities and card sectors is interpreted as an effect of the base interest rate hikes. In the securities industry, the capital market's sluggishness and weakened investment sentiment due to the interest rate hikes had a significant impact. The card industry was also not free from the effects of rising funding costs and strengthened regulations related to loans and fees.

Industry insiders expect the non-bank sector's sluggishness to continue for the time being. A financial sector official said, "Both the U.S. Federal Reserve and the Bank of Korea are considering medium- to long-term interest rate hikes, and external conditions such as the Russia-Ukraine war and the Shanghai lockdown remain volatile," adding, "It will be difficult for earnings to improve rapidly in the short term."

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