Financial Stocks Driving Strong Q2 Earnings Performance

[Asia Economy Reporter Song Hwajeong] As companies continue to announce their second-quarter earnings for this year, financial stocks are leading the strong performance by consistently delivering results that exceed market expectations.

According to financial information provider FnGuide on the 27th, all recently announced earnings from financial stocks surpassed consensus estimates.

Shinhan Financial Group recorded a controlling shareholder net profit of 873.1 billion KRW in the second quarter, a 12.3% decrease compared to the same period last year, but still exceeded consensus. Baek Doosan, a researcher at Korea Investment & Securities, analyzed, "Shinhan Financial Group's second-quarter controlling shareholder net profit exceeded consensus by 5%. Despite increased provisions related to COVID-19 and private equity fund expenses, non-interest income surpassed expectations." Baek added, "Non-interest income significantly improved, driven by card fees, securities custody fees, and securities and foreign exchange/derivatives gains from both banking and securities divisions. The COVID-19 provisions and private equity fund losses were fully recognized in the second quarter, demonstrating solid earnings resilience and raising expectations for net profit in the second half."

Hana Financial Group also exceeded consensus with a second-quarter controlling shareholder net profit of 687.6 billion KRW, a 4.4% increase year-on-year. Park Hyejin, a researcher at Daishin Securities, explained, "The second-quarter controlling shareholder net profit achieved an earnings surprise by exceeding consensus and our estimates by 18.4% and 27.4%, respectively. The strong performance was due to a smaller-than-expected decline in net interest margin (NIM), improved trading gains, and reduced selling and administrative expenses."

KB Financial Group posted a second-quarter controlling shareholder net profit of 981.8 billion KRW, also surpassing consensus. Baek noted, "The second-quarter controlling shareholder net profit exceeded consensus by 14%, thanks to a significant recovery in COVID-19 related losses that were reflected in the first quarter."

Securities stocks, which were expected to perform well due to increased trading volume, also delivered solid results. NH Investment & Securities recorded a second-quarter controlling shareholder net profit of 229.5 billion KRW, a 113.8% increase year-on-year. Jung Taejun, a researcher at Yuanta Securities, said, "The second-quarter controlling shareholder net profit exceeded the consensus of 162 billion KRW. The standout factor was a surprise in trading gains, along with better-than-expected interest income due to a sharp increase in credit lending balances."

Hyundai Motor Securities posted a second-quarter controlling shareholder net profit of 28.6 billion KRW, a 5.9% decrease year-on-year but still above consensus. Considering the one-time gain from the sale of the Dongtan Center Point Mall in the second quarter of last year, this is the best quarterly performance ever. Kyobo Securities recorded a second-quarter controlling shareholder net profit of 43.4 billion KRW, a 52.7% increase year-on-year.

Following banks and securities, insurance stocks are also expected to show strong second-quarter earnings. According to Kyobo Securities, the combined second-quarter profits of four life insurers?Samsung Life, Hanwha Life, Tongyang Life, and Mirae Asset Life?are expected to increase by 32.3% year-on-year to approximately 583.6 billion KRW. The combined second-quarter profits of five non-life insurers?Samsung Fire & Marine, Hyundai Marine & Fire, DB Insurance, Meritz Fire & Marine, and Hanwha General Insurance?are forecasted to rise 42.9% to 661.8 billion KRW. Kim Jiyoung, a researcher at Kyobo Securities, explained, "For life insurers, the number and amount of claims have decreased due to the COVID-19 pandemic, leading to a decline in risk loss ratios. Additionally, the recovery of the stock market compared to the first quarter is expected to reduce reserves related to variable insurance and generate reversal effects. For non-life insurers, the reduction in automobile usage due to COVID-19 has significantly improved loss ratios in auto insurance. Similar to life insurers, risk loss ratios are expected to improve due to fewer claims and claim amounts related to long-term insurance."