'Productive Finance Leads, Stock Market Pushes'... Four Major Financial Groups Set for Record First-Quarter Net Profit

Household Loans Decline but Corporate Lending Surges, Sustaining Growth
Wider Loan-Deposit Rate Spread Improves NIM... Non-Interest Income Also Drives Results
Key Challenges: Defending CET1 Ratio and Managing NPLs Amid FX Risk

As the four major financial holding companies (KB, Shinhan, Hana, and Woori) prepare to announce their first-quarter results, their combined net profit is expected to surpass 5 trillion won, marking an all-time high. Analysts attribute this record performance to the expansion of corporate lending aligned with the “productive finance” policy, which offset the reduction in household loans, as well as to increased non-interest income driven by a booming stock market.

According to financial information provider FnGuide on April 22, the combined estimated net profit of the four major financial holding companies for the first quarter of this year is 5.3178 trillion won. This represents an increase of 388.9 billion won, or 7.9%, compared to the first quarter of last year (4.9289 trillion won). KB Financial Group and Shinhan Financial Group will announce their results on April 23, while Hana Financial Group and Woori Financial Group will release theirs on April 24.

Market forecasts suggest that KB Financial Group will post 1.7866 trillion won in net profit, Shinhan Financial Group 1.5607 trillion won, Hana Financial Group 1.1553 trillion won, and Woori Financial Group 815.2 billion won, reflecting year-on-year increases of 5.26%, 4.86%, 2.45%, and 32.42%, respectively. Woori Financial Group, in particular, is expected to show the steepest growth among its peers, as it no longer faces one-off costs such as severance pay that weighed on last year’s results, and it will also benefit from approximately 65.8 billion won in proceeds from the sale of existing shares following K Bank’s initial public offering last month.

Corporate Lending Rises Despite Household Loan Decline... Non-Interest Income Also Boosted by Stock Market Rally

For the banking subsidiaries of the four major financial holding companies, the government’s policies have led to a decrease in household loans, but the expansion of corporate lending under the productive finance initiative is expected to positively impact first-quarter earnings. As of the end of last month, the outstanding balance of household loans among the four major banks stood at 619.9263 trillion won, down 1.9444 trillion won (0.3%) from the end of last year. However, corporate loans grew by 12.8893 trillion won over the same period, reaching 708.6974 trillion won, in line with the productive finance policy, resulting in overall loan growth. Additionally, with lending rates rising, the spread between deposit and loan rates has widened, and the net interest margin (NIM) is expected to increase by 1–4 basis points (1bp = 0.01 percentage points) compared to the end of last year, which should have a positive impact on the holding companies’ net profits.

Thanks to the strong stock market, non-interest income such as brokerage fees at securities firms and fee/trust income from products like exchange-traded funds (ETFs) and equity-linked deposits (ELDs) at banks is also expected to rise. Last year, while the increase in interest income for KB, Shinhan, Hana, and Woori Financial Groups was limited to around 2% year-on-year, robust stock market activity led to a substantial increase in non-interest income, notably from expanded brokerage fees. In 2023, non-interest income for the four major financial holding companies reached 4.8721 trillion won for KB Financial Group, 3.7442 trillion won for Shinhan Financial Group, 2.2133 trillion won for Hana Financial Group, and 1.9266 trillion won for Woori Financial Group.

March Middle East War Currency Risk... Focus on CET1, NPL, and Capital Soundness Management

However, the sharp rise in the KRW/USD exchange rate caused by the war in the Middle East is expected to put the spotlight on capital soundness indicators for the financial holding companies. The KRW/USD exchange rate, which had dropped to the 1,420 won range in February this year, surged to the 1,540 won range last month due to the Middle East conflict. The Common Equity Tier 1 (CET1) ratio typically declines when the exchange rate rises because foreign currency risk-weighted assets (RWA), when converted to won, increase in value, thus lowering the ratio. As a result, the financial holding companies implemented RWA management and currency hedging strategies throughout the first quarter to defend their CET1 ratios. Last year, KB Financial Group recorded a CET1 ratio of 13.79%, Shinhan Financial Group 13.33%, Hana Financial Group 13.37%, and Woori Financial Group 12.9%. The four major financial holding companies have pledged to expand shareholder returns if their CET1 ratios exceed 13%.

The long-standing issue of growing non-performing loans (NPL) is also likely to be raised again. The four major financial holding companies’ NPLs—loans overdue by more than three months—rose by 9.8% (1.0662 trillion won), from 10.8684 trillion won at the end of 2022 to 11.9346 trillion won at the end of 2023. To reduce NPLs, companies must increase loan-loss provisions, which in turn reduces net profit by the amount provisioned. The current high exchange rate environment has raised import costs, increasing the financial burden on companies, and making NPL management more challenging for banks.

An industry insider commented, “Financial holding companies have prepared various hedging measures at the group level to protect net profit, and in cases of short-term currency spikes like this, they are generally able to defend themselves without significant impact on performance. However, if high exchange rates arising from geopolitical risks become prolonged, other scenarios will need to be considered.”

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