Four Major Financial Holding Companies Increasing Reserve Funds Storage

Additional Reserve of 100 Billion to 200 Billion Won
Potential for Expansion Depending on Economic Outlook
Negative Impact on Second Half Performance

[Asia Economy Reporter Song Hwajeong] The four major financial holding companies posted solid results in the first half of this year, but their second-quarter earnings slowed compared to the previous quarter due to provisions for loan losses. As economic uncertainties expand going forward, the scale of provisions by financial companies is also likely to increase, which is expected to negatively impact second-half earnings.

According to the financial sector on the 26th, the four major financial holding companies reflected future economic outlooks by additionally setting aside provisions ranging from 100 billion to 200 billion KRW in the second quarter of this year.

Shinhan Financial Group additionally set aside 224.5 billion KRW in economic response provisions in the second quarter. This is a significant increase compared to the 74.5 billion KRW of COVID-19 provisions additionally set aside in the first quarter. Shinhan Financial Group set aside a total of 299 billion KRW in additional provisions in the first half alone, representing a 67.6% increase compared to the same period last year. The amount of loan loss provisions increased by 47%, from 243.6 billion KRW in the first quarter to 358.2 billion KRW in the second quarter. Shinhan Financial CFO Lee Taekyung explained, "We conducted stress tests on risks such as interest burden due to rising interest rates and set aside additional provisions considering scenarios including a '2 percentage point increase in interest rates.'"

KB Financial Group conservatively reflected future economic outlooks and additionally set aside 121 billion KRW in provisions in the second quarter. Accordingly, the credit loss provision amount in the second quarter (333.1 billion KRW) increased by 156% compared to the previous quarter (130.1 billion KRW).

Woori Financial Group also added 131 billion KRW in additional provisions in the second quarter reflecting future economic outlooks. Loan loss provisions in the second quarter reached 330.8 billion KRW, a 99.4% increase compared to 166.1 billion KRW in the first quarter.

Hana Financial Group set aside 124.3 billion KRW as proactive loan loss provisions in the second quarter. This is more than double the 60.3 billion KRW set aside in the first quarter. The total amount of provisions and related entries in the second quarter was 252.1 billion KRW, also a significant increase compared to 170.1 billion KRW in the first quarter.

As such, by setting aside additional provisions reflecting future economic outlooks, second-quarter earnings showed a slowdown compared to the previous quarter. KB posted a net profit of 1.3035 trillion KRW in the second quarter, and Shinhan posted 1.3204 trillion KRW, down 10.3% and 5.7% respectively from the previous quarter. Hana's net profit was 825.1 billion KRW, down 8.6%. Only Woori saw an increase, with 92.2 billion KRW, up 9.9%.

With growing economic uncertainties, the possibility of additional provisions in the second half cannot be ruled out. This is expected to act as a negative factor for second-half earnings. SK Securities researcher Koo Kyunghoe analyzed, "Considering that large U.S. banks saw a slowdown in second-quarter earnings due to increased provision costs and that the annual net profit of the six major large bank holding companies is expected to decrease by 23% this year, it is highly likely that domestic banks' future earnings expectations will also decline."

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