Korea Financial Group Reports Q2 Earnings Shock... Loan Interest Increases

[Asia Economy Reporter Ji Yeon-jin] Korea Financial Group recorded an 'earnings shock' in the second quarter with results far below market expectations. This was due to large-scale bond valuation losses caused by increased volatility in the bond market following interest rate hikes, while its subsidiary Korea Investment & Securities saw an increase in loan interest from 'debt investment' clients.

According to Korea Financial Group on the 3rd, the group posted a consolidated net income of 99.5 billion KRW in the second quarter, falling 56% short of the market forecast of 224.8 billion KRW. This was due to an operating loss of 87.6 billion KRW on a separate basis at its subsidiary Korea Investment & Securities, which turned from an operating profit of 145.3 billion KRW in the previous quarter to a loss. Bond operation losses of about 100 billion KRW occurred due to a sharp rise in short-term interest rates in June, along with investment asset valuation losses of approximately 30 billion KRW from securities investment trusts. Additionally, foreign exchange losses of 34 billion KRW were recorded from currency fluctuations on $600 million of foreign currency bonds issued by Korea Investment & Securities (KIS). Furthermore, brokerage fees (securities transaction commissions, -9.0%), equity-linked securities (ELS) and derivative-linked securities (DLS) (-25.4%), investment trust sales commissions (-6.8%), and corporate finance (IB) fees (-1.5%) also declined compared to the previous quarter.

On the other hand, interest income related to corporate loans increased by 7.4%, from 24 billion KRW in the first quarter to 25.8 billion KRW in the same period this year, and brokerage interest also rose by 2.4%. The average loan balance increased from 3.7 trillion KRW last year to 3.83 trillion KRW in the first half of this year, indicating a rise in 'debt investment' where investors borrow to buy stocks. According to the Korea Financial Investment Association, while the total credit transaction loan balance of securities firms decreased from 23.0886 trillion KRW at the end of last year to 18.6299 trillion KRW recently, Korea Investment & Securities' balance actually increased. Samsung Securities researcher Jung Min-ki stated, "The occurrence of large-scale operating losses could act as a factor that diminishes the profit visibility of Korea Financial Group going forward. Especially, while sharp fluctuations in bond profits due to rising interest rates are common, losses arising from affiliated funds and issued promissory notes and other assets may raise market doubts about the possibility of additional losses across various investment asset classes in the future." Among the seven securities firms that issued investment opinions on Korea Financial Group that day, six lowered their target prices.

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