Shrinking Profits for Major Financial Groups' Non-Banking Subsidiaries... No Easy Alternatives to 'Interest Business'

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The cumulative performance of second-tier financial affiliates of the four major financial groups in Korea (KB, Shinhan, Hana, and Woori) for the third quarter of this year decreased by approximately 340 billion won compared to last year. This decline is attributed to the worsening of their core businesses due to the ongoing economic recession, as well as unfavorable external conditions such as low interest rates and financial market instability.

According to the financial sector on November 11, the cumulative net profit for the third quarter of this year from the 16 major non-banking affiliates (insurance, card, and securities companies) of the four major financial groups was 3.6647 trillion won, marking an 8.43% decrease from the same period last year (4.0021 trillion won). During the same period, the net profits of the banks within these financial groups rose significantly-except for Woori Bank (-9.15%), KB Kookmin Bank (28.5%), Shinhan Bank (10.3%), and Hana Bank (12.7%) all saw substantial increases-highlighting the underperformance of their non-banking affiliates.

The cumulative net profit for the third quarter of this year from Woori Financial Group's second-tier affiliates-Tongyang Life Insurance, ABL Life Insurance, Woori Card, and Woori Investment & Securities-was 308 billion won, a 33.3% decrease compared to the same period last year. However, Tongyang Life Insurance and ABL Life Insurance were not subsidiaries of Woori Financial Group last year. Tongyang Life Insurance, which became a Woori Financial Group subsidiary in July, recorded a cumulative net profit of 109.9 billion won for the third quarter, a sharp decline of 55.1% compared to the same period last year. Both ABL Life Insurance and Woori Investment & Securities saw improved results. Woori Card’s net profit dropped by 24.3% compared to the same period last year.

Hana Financial Group’s second-tier affiliates posted a cumulative net profit of 324.9 billion won for the third quarter, a 10.1% decrease from the same period last year (361.5 billion won). All of Hana Life Insurance, Hana Insurance, Hana Card, and Hana Securities posted lower results compared to the same period last year. Despite this, Hana Financial Group achieved a record-high cumulative net profit of 3.4334 trillion won for the third quarter, as Hana Bank’s net profit surpassed 3 trillion won in just three quarters for the first time in its history.

KB Financial Group’s second-tier affiliates recorded a cumulative net profit of 1.8047 trillion won for the third quarter, a 6.17% decrease compared to the same period last year (1.9234 trillion won). KB Insurance performed well, with a cumulative net profit of 766.9 billion won for the third quarter, up 3.6% from the same period last year. KB Life Insurance’s cumulative net profit for the third quarter was 254.8 billion won, down 2.3% year-on-year, while KB Kookmin Card (-24.2%) and KB Securities (-9%) both saw declines in net profit.

For Shinhan Financial Group, the cumulative net profit of its second-tier affiliates for this year was 1.2271 trillion won, a modest decrease of 2.25% from the same period last year (1.2553 trillion won). Shinhan Life Insurance contributed to the results with a cumulative net profit of 514.5 billion won for the third quarter, a 10.1% increase year-on-year. During the same period, Shinhan Investment & Securities posted a net profit of 359.4 billion won, a 44% increase. However, Shinhan Card’s net profit fell by 31.2%, and Shinhan EZ Insurance’s deficit nearly doubled, reflecting continued struggles.

Among the 16 major non-banking affiliates of the four major financial groups, only five-Shinhan Life Insurance, Shinhan Investment & Securities, KB Insurance, ABL Life Insurance, and Woori Investment & Securities-achieved an increase in cumulative net profit for the third quarter compared to the same period last year. Insurance companies generally underperformed due to factors such as low birth rates, an aging population, intensified competition in the third-sector insurance market, and worsening loss ratios in auto insurance. Card companies struggled due to reduced merchant fees and declining card loan profits resulting from the total debt service ratio (DSR) regulations. For securities companies, while retail revenues increased thanks to a booming stock market, the impact of non-performing assets, such as the need to set aside provisions for real estate project financing (PF), has yet to be fully resolved.

An industry insider commented, “As the four major financial groups are working to strengthen their non-banking sectors to move away from criticism of ‘interest business,’ the poor performance of second-tier affiliates could have a significant impact on group governance. Prolonged low interest rates, economic instability, and the expansion of productive finance are also challenges that need to be addressed.”

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