US Banks Lowering Earnings Expectations, What About Korea?

[Asia Economy Reporter Song Hwajeong] As major U.S. banks are expected to see a slowdown in their second-quarter earnings this year, leading to lowered earnings expectations, there is an analysis that domestic banks are also likely to experience a decline in future earnings expectations.

According to SK Securities on the 23rd, most major U.S. banks recorded sluggish second-quarter results. Among the four major bank holding companies?JP Morgan, Bank of America, Wells Fargo, and Citigroup?only Citigroup exceeded earnings forecasts (consensus). Ku Kyunghoe, a researcher at SK Securities, said, "Although Citigroup's net income consensus was down 46% year-on-year, the actual decrease was 27%, so there are limits to interpreting this positively."

The reason for the slowdown in U.S. banks' second-quarter earnings is increased costs due to strengthened provisioning standards. Banks measure potential future losses and set aside provisions accordingly, and recently, due to tightening and a gloomy economic outlook, provisioning costs have increased. Researcher Ku explained, "Although this is an accounting cost and has been criticized as 'rubber-band earnings,' it is an appropriate choice for the accounting principle of 'timeliness.' If domestic banks' earnings consensus declines in the future, it will likely be due to increased loan loss provisioning costs reflecting future uncertainties."

According to Bloomberg, the annual net income of these four major bank holding companies, including US Bancorp and PNC Financial, the six largest bank holding companies, is expected to decrease by 23%, from $131.1 billion last year to $101 billion this year.

Domestic banks also saw a slowdown in earnings in the second quarter compared to the previous quarter due to decreases in non-interest income and increased provisioning. KB Financial Group's net income for the second quarter was 1.3035 trillion won, and Shinhan Financial Group's was 1.3204 trillion won, down 10.3% and 5.7% respectively from the previous quarter. Hana Financial Group also decreased by 8.6% to 825.1 billion won. Only Woori Financial Group increased by 9.9% to 92.2 billion won.

Researcher Ku said, "Although the earnings decline in 2022 was expected by everyone since the 2021 results included provision reversals, the momentum itself is indeed weak. Even domestic bank stocks, whose earnings consensus has not yet fallen, are likely to see lowered earnings expectations in the future, judging by the U.S. case."

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