"Top 4 Financial Holding Companies Record Maximum Interest Income of 19 Trillion Won... Impact of Rising Interest Rates"

Major Financial Groups Record Highest Ever Profits in First Half of This Year
Loans Increased During COVID Period, Impact of Base Rate Hikes Since Last Year
Provisions Increased by Over 300 Billion Won

On the 7th, a scene at a bank counter in Seoul as major commercial banks continue to lower loan interest rates while raising interest rates on regular savings and installment savings products. Photo by Kang Jin-hyung aymsdream@

[Asia Economy Reporter Sim Nayoung] Domestic major financial groups recorded their highest-ever profits in the first half of this year. Furthermore, if the base interest rate, currently at 2.25%, rises to 2.75?3.00% in the second half as the market expects, the interest income of financial groups is expected to increase significantly. Even a 0.25 percentage point (p) increase in the base rate causes the net interest margin (NIM) of major commercial banks to rise by 0.03?0.05%p, boosting interest income by over 100 billion KRW.

Since a rapid rise in interest rates increases the risk of loan defaults, especially among vulnerable borrowers, financial groups also set aside more than 300 billion KRW in additional provisions in the second quarter to prepare for 'future risks.'

According to the financial industry on the 24th, KB, Shinhan, Hana, and Woori Financial Groups earned about 19 trillion KRW in interest income in the first half of this year, showing growth of around 20% compared to the same period last year. The net interest income and growth rates (compared to the same period last year) of the four major financial holding companies in the first half were ▲ KB 5.4418 trillion KRW, 18.7% ▲ Shinhan 5.1317 trillion KRW, 17.3% ▲ Hana 4.1906 trillion KRW, 18.0% ▲ Woori 4.1033 trillion KRW, 23.5%.

With the sharp increase in interest income, net profits also reached record highs. KB Financial (2.7566 trillion KRW) and Shinhan Financial (2.7208 trillion KRW) both exceeded 2.7 trillion KRW in net profit for the first half. Hana Financial (1.7274 trillion KRW) and Woori Financial (1.7614 trillion KRW) reached the 1.7 trillion KRW range.

The reason why financial groups' 'interest business' is booming more than ever is due to rising interest rates and a surge in loans. Over the past two years during the COVID-19 pandemic, household and corporate loans increased to record levels. Although household loans have decreased this year, corporate loans at major commercial banks have increased by about 5%.

Loans surged, and with the Bank of Korea's base rate hikes starting in August last year continuing and market interest rates rising, loan interest rates jumped, increasing interest income. During periods of rising interest rates, the speed of deposit rate increases is slower than loan rate increases, so the interest margin between deposits and loans inevitably widens.

Chief Financial Officers also stated that interest income would increase with further base rate hikes. Lee Huiseung, CFO of Hana Financial, said during a conference call after the earnings announcement on the 22nd, "Since about 80% of bank loans are variable rate, a 0.25%p increase in the base rate increases our (Hana Bank's) interest income by about 100 billion KRW."

Lee Taekyung, CFO of Shinhan Financial, also explained, "For Shinhan Bank, the NIM rises by 0.03?0.04%p each time the base rate increases by 0.25%p." Lee Sungwook, CFO of Woori Financial, added, "If the base rate rises by 0.25%p, (Woori Bank's) NIM increases by about 0.05%p over one year."

The Bank of Korea took an unprecedented big step (a 0.5%p increase in the base rate at once) on the 13th, and the market expects the Bank of Korea to raise the base rate by 0.25%p two to three more times this year, reaching 2.75?3.00% by year-end. The big step effect was not reflected in the first half results. With inflation continuing at a high level, the base rate is likely to keep rising for some time, and the increase in interest income for banks and financial groups is expected to continue.

Meanwhile, each financial group set aside a large amount of provisions related to future uncertainties such as the end of COVID-19 financial support in the first half. Recently, Financial Services Commission Chairman Kim Joo-hyun urged, "Financial companies must provide answers regarding parts excluded from government financial support measures for vulnerable groups." Financial Supervisory Service Governor Lee Bok-hyun also said, "The financial sector needs to make various voluntary efforts to protect vulnerable borrowers beyond government-level measures."

Accordingly, Shinhan Financial set aside an additional 224.5 billion KRW in COVID-19 and economic response provisions in the second quarter. As a result, the total related provisions for the first half (299 billion KRW) increased by 59% compared to last year's total (187.9 billion KRW). KB Financial's credit loss provisions in the second quarter (333.1 billion KRW) also rose 48.9% from the second quarter last year (223.7 billion KRW). This was because they conservatively reflected future economic outlooks and set aside about 121 billion KRW more provisions. Consequently, KB Financial's total credit loss provisions for the first half reached 463.2 billion KRW.

Hana Financial also set aside 124.3 billion KRW in loan loss provisions in the second quarter. Including 60.3 billion KRW in the first quarter, they added 184.6 billion KRW in the first half. Woori Financial also added 330.8 billion KRW in provisions in the second quarter alone.

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