Next Week's Bank Earnings Announcements Begin... Key Points to Watch

Four Major Financial Holding Companies Expected to Earn 9 Trillion Won in the First Half
Focus on Loan Loss Provisions, Foreign Currency Translation Losses, and Office Building Sales

[Image source=Yonhap News]

[Asia Economy Reporter Minwoo Lee] Starting from the 21st, the four major financial holding companies?KB Financial Group, Shinhan, Hana, and Woori?are expected to announce their second-quarter earnings over the course of a week. While strong performance is anticipated, attention should be paid to foreign currency translation losses, the scale of loan loss provisions, and the timing of recognizing gains from real estate sales, according to analyses.

According to the financial sector on the 17th, the four major financial holding companies will begin their full-scale second-quarter earnings announcements. KB Financial Group is scheduled for the 21st, while Shinhan, Hana, and Woori Financial Group are set for the 22nd.

According to financial information analysis firm FnGuide, the combined consensus (market forecast) for net profit in the second quarter of this year for the four major financial holding companies?KB, Shinhan, Hana, and Woori?is 4.5327 trillion KRW. This surpasses the 4 trillion KRW mark again following the first quarter. On a half-year basis, it is expected to exceed 9 trillion KRW, marking an all-time high. Despite a decrease in household loans, the increase in corporate loans offset this, and the rise in the base interest rate improved the net interest margin (NIM), which is seen as the cause.

Researcher Jaewoo Kim of Samsung Securities explained, "As the Bank of Korea has consecutively raised the base interest rate, the COFIX (Cost of Funds Index) rate has also risen, so the increase in NIM will be greater than in the first quarter. Although the bank loan growth rate in the second quarter was 1.5%, lower than 2.1% in the same period last year, considering that household loans recorded negative growth, this is a better-than-expected level."

Despite strong performance, there are areas to watch closely. First is loan loss provisions. While the asset quality of banks is expected to continue a downward stabilization trend, the cost of provisioning is likely to increase significantly compared to the previous quarter. With rising concerns about 'stagflation,' where rapid inflation and economic recession occur simultaneously, banks have a growing need to proactively set aside provisions. Some forecasts suggest provisions could be set at around 10% of the loan loss provision balance. Researcher Kim stated, "In this case, KB, Shinhan, and Hana Banks would bear costs in the range of 130 billion to 160 billion KRW. However, considering their current profit-generating capacity, this level is manageable."

Foreign currency translation losses are also expected to be a burden. Due to the war between Russia and Ukraine and global supply chain issues, the won-dollar exchange rate has surged, making related losses inevitable. At the end of the second quarter, the won-dollar exchange rate was 1,293 KRW per dollar, up 82 KRW (about 6.8%) from 1,211 KRW at the end of March. Analyses suggest that Hana Financial Group and IBK Industrial Bank could face related losses of 141.6 billion KRW and 35.8 billion KRW, respectively.

The timing of recognizing gains from real estate sales is also crucial. KB Financial Group has signed a contract to sell five buildings owned by KB Insurance, with about 500 billion KRW in sales proceeds expected to be reflected in this quarter's earnings. Shinhan Investment Corp. has also selected a preferred bidder for the sale of its headquarters building, with gains expected to reach 400 billion KRW. However, unlike KB Financial, Shinhan Financial Group has not yet completed the contract, so the timing of gain recognition remains undecided. Researcher Kim predicted, "Even if not in the second quarter, the real estate sales are likely to be completed within this year, which will offset unusual factors such as proactive provisioning burdens and contribute to earnings improvement."

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