Four major banks (Shinhan Financial Group, KB Financial Group, Woori Bank, Hana Financial Group)
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(Seoul = Yonhap Infomax) Reporter Lee Soo-yong, Garden = The net profit of the four major financial holding companies, KB Kookmin, Shinhan, Hana, and Woori, which continued their march of ‘highest performance’, is expected to hit a ‘sudden brake’ in net profit in the first quarter of this year.
This is due to the reflection of one-time costs of more than 1 trillion won in the aftermath of voluntary compensation for equity-linked securities (ELS) linked to the Hong Kong H index, which suffered large-scale losses.
In particular, the performance of KB Financial, which was the largest seller of ELS, is expected to take a major hit, so a change in the competitive structure surrounding ‘leading finance’ appears inevitable.
◇ Shinhan Financial Group forecasts 1.1845 trillion won… KB Financial Group 947.1 billion won, 37%↓
On the 24th, Yonhap Infomax conducted a consensus among major securities companies that presented performance forecasts for the past month, and the net profit of the four major financial holding companies for controlling interests in the first quarter was calculated to be KRW 3.8043 trillion.
This is a 22.4% decrease compared to 4.9 trillion won in the first quarter of last year.
In particular, KB Financial Group’s net profit consensus was expected to plummet by 36.75% from the same period last year to KRW 947.1 billion.
Although it maintained its position as a ‘leading financial institution’ until last year, it is expected to eventually lose first place to Shinhan Financial Group, which was relatively free from ELS voluntary compensation issues.
Shinhan Financial Group’s net profit forecast for the first quarter is KRW 1.1845 trillion, which is expected to decrease by only 14.66%.
Next, Hana Financial Group was expected to decrease by 21.56% to KRW 864.5 billion, and Woori Financial Group was expected to decrease by 11.54% to KRW 808.2 billion.
An official from the financial sector said, “As it was the largest seller, it does not seem easy for KB Financial to maintain its leading financial position. However, as most of the costs due to voluntary compensation have been decided to be reflected in provisions in the first quarter, it is not clear what the competitive landscape will be like after the second quarter.” “It is difficult to predict whether this will happen,” he said.
◇ The four major financial holding companies in Hong Kong are expected to recognize 1.5 trillion won in ELS provisions alone.
The significant slowdown in the performance of the four major financial holding companies in the first quarter of this year was largely due to the recognition of losses due to the Hong Kong H Index ELS voluntary compensation.
The four major banks held a board meeting at the end of March and resolved to provide voluntary compensation for ELS losses. The related estimated losses were decided to be reflected in the first quarter.
As some losses have not yet been confirmed, there was discussion about recognizing provisions quarterly, but an agreement was reached to reflect them all in the first quarter for faster compensation.
Based on the total expected loss amount pre-reflected, the structure is to accumulate additional money or repay it by reflecting the size of future loss.
KB Kookmin Bank, which sold the most Hong Kong H-index ELS, is expected to accumulate provisions worth more than 900 billion won.
In the case of Kookmin Bank, the Hong Kong ELS sales balance was KRW 7.6695 trillion, the largest among banks and securities companies that sold.
In addition, Shinhan Bank and Hana Bank are also expected to recognize provisions worth around 300 billion won and 200 billion won, respectively.
In the case of Shinhan Bank, the sales balance was 2.37 trillion won, which was one-third of that of Kookmin Bank.
In the case of Woori Financial Group, the sales balance is 41.3 billion won, which is the smallest among the four major banks, but the continued sluggishness of non-bank affiliates such as card, capital, and savings banks is putting a burden on its performance.
◇ Thanks to the high interest rate policy and corporate loans… Interest income is on the rise
However, excluding Hong Kong ELS voluntary compensation, which is a one-time cost, the profit structure of financial holding companies and banks is expected to remain at a solid level.
Interest income was expected to increase slightly due to increased corporate loans and stable net interest margin (NIM).
The size of won-denominated loans from the four major banks amounted to 1222.451 trillion won at the end of March, an increase of about 6.7% compared to the end of March last year.
Although the amount of increase in household loans was limited due to the authorities’ efforts to suppress household debt, this is the result of an increase in loans, focusing on corporate loans such as large corporations and small and medium-sized enterprises.
In addition, as term deposits raised at high interest rates due to the bond market tightening around the fourth quarter of 2022 mature at the end of last year, the interest cost burden is expected to decrease and a solid NIM can be maintained.
◇ Rebound expected from the second quarter… Healthiness is a ‘variable’
The financial sector expects the performance of financial holding companies to improve again starting in the second quarter.
This is because NIM, a key profitability indicator, is expected to show a gradual rise as expectations of interest rate cuts subside, and the ELS provision issue was resolved during the first quarter.
Analysis suggests that preemptively increasing provisions last year in preparation for economic uncertainty will help manage future performance.
Most financial holding companies conservatively improved their default rate (PD) and default loss rate (LGD) index calculation methods last year and accumulated additional loan loss reserves.
However, a financial industry official said, “As of last February, the delinquency rate of domestic banks’ won-denominated loans was 0.51%, the highest level in four years and nine months, and the burden of credit costs due to worsening soundness still remains.”
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This article was published at 10:19 on the Infomax financial information terminal.
Tags: major financial holding companies net profit drops quarter due Hong Kong ELS direct hit PolicyFinance Text article
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