Banks Earn 4 Trillion Won in Three Months... Record-Breaking 1Q Earnings

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[Asia Economy Reporter Minwoo Lee] For the first time ever, the combined net profit of South Korea's four major financial holding companies?KB, Shinhan, Hana, and Woori?surpassed 4 trillion won in the first quarter of this year. This is attributed to increased interest income as loan interest rates rose following rate hikes, despite a steady decline in household loans.

According to the financial sector on the 23rd, the combined net profit of the four major financial holding companies on a consolidated basis for the first quarter of this year was 4.6399 trillion won, marking a 16.9% increase compared to the same period last year. The first quarter, typically an off-season for loans, saw net profits exceed 4 trillion won for the first time. This figure also far exceeded the early 4 trillion won range initially forecasted by the securities industry.

By company, KB Financial recorded the highest net profit at 1.4531 trillion won, achieving its highest quarterly figure ever with a 14.4% increase from the first quarter of last year. Shinhan Financial also posted 1.4004 trillion won, up 17.5% year-on-year, marking its highest quarterly net profit as well. Hana Financial, which had held third place, was initially expected by securities analysts to post 799.4 billion won due to one-time costs such as foreign exchange transaction losses and retirement benefits, trailing behind Woori Bank. However, it actually earned over 100 billion won more, recording 902.2 billion won, an 8.0% increase from the previous year, maintaining its third-place position. Woori Financial, the only one among the four without insurance and securities affiliates, also posted its highest quarterly net profit of 884.2 billion won, buoyed by Woori Bank's strong performance.

Among the financial holding companies' affiliates, bank net profits?especially interest income?saw significant growth. KB Financial's first-quarter interest income was 2.648 trillion won, an 18.6% increase year-on-year. The other banks?Shinhan (2.4876 trillion won), Hana (2.0203 trillion won), and Woori (1.9877 trillion won)?also recorded double-digit growth rates in interest income.

Although loan interest rates rose sharply due to base rate hikes and market rate increases, the pace of deposit rate increases lagged behind, widening the interest rate spread between loans and deposits. According to the Bank of Korea, the average difference between loan and deposit interest rates in the banking sector widened from 1.55 percentage points (p) in December last year to 1.86 p as of February this year.

As the COVID-19 situation continues and loan interest rates rise, there are concerns that the financial conditions of ordinary citizens are worsening and corporate profitability is declining, while banks are reportedly enjoying record-breaking "money parties."

With the stock market faltering, the banks' dependence within the four major financial holding companies has increased further. The proportion of KB Kookmin Bank's net profit within KB Financial's total net profit was 67.2%, up 13.0 p from 54.2% in the first quarter of last year. Shinhan Financial's bank net profit ratio also rose from 55.7% to 62.7% during the same period. Hana Financial (73.9%) and Woori Financial (80.7%) similarly saw increased dependence on their banking sectors.

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