Despite Increased Provisions, 4 Major Banks Performed Well... 'Uncertain' from Q2

by Yoo Jaehoon

Published 30 Apr.2023 10:00(KST)

Major domestic financial holding companies have succeeded in maintaining solid performance despite large-scale reserve accumulation in preparation for economic downturns.

According to the financial sector on the 30th, the combined net income of the four major domestic financial holding companies (KB, Shinhan, Hana, and Woori) in the first quarter was 4.8991 trillion won. This represents an increase of about 6.8% compared to the same period last year (4.587 trillion won) and exceeds market expectations (4.5304 trillion won).

Initially, the market had anticipated a slight decline in net income, as each financial company was setting aside large reserves in preparation for economic downturns and non-performing loans (NPLs), and was strengthening win-win finance amid recent criticism of "interest profiteering."

In fact, most financial companies significantly increased their provisions for loan losses. KB Financial set aside 668.2 billion won, an increase of 358.35% compared to the previous year, and Shinhan Financial accumulated 461 billion won, an 89.4% increase. Hana Financial and Woori Financial also set aside reserves of 343.2 billion won and 261.4 billion won, respectively, which is about 1.5 to 2 times the amount from the previous year.

A financial sector official explained, "Due to large-scale reserve accumulation and win-win finance, the growth in interest income is slowing down," but added, "However, non-interest income such as gains from securities operations has increased due to the downward stabilization of market interest rates, which had surged throughout last year, offsetting this effect."

Looking at the scale of non-interest income of major financial holding companies, KB recorded 1.5745 trillion won (7.7% increase), Shinhan Financial 1.0329 trillion won (17.0% increase), Hana Financial 778.8 billion won (52.9% increase), and NH Nonghyup Financial 721.6 billion won (129.9% increase), showing clear signs of growth. However, Woori Bank's non-interest income remained at 331.7 billion won, down 13.4% from the previous year.

Nevertheless, concerns remain that the outlook is not entirely bright. As the interest rate spread narrows and delinquency rates rise, additional reserve accumulation is inevitable. The net interest margin (NIM), a representative profitability indicator for financial companies, has already begun to decline. KB Kookmin Bank recorded 1.79%, up 0.02 percentage points from the previous quarter, but Shinhan Bank (1.67% → 1.59%), Hana Bank (1.74% → 1.68%), and Woori Bank (1.68% → 1.65%) showed a downward trend.