Increase in Bank Net Interest Margin and Improvement in Non-Bank Segment Performance
Assets of 618.8 Trillion KRW... Stable Asset Quality and Capital Adequacy
"Ongoing Efforts to Resolve Uncertainties... Restoring Market Confidence"
[Asia Economy Reporter Kwangho Lee] Shinhan Financial Group posted a net profit of 1.2 trillion KRW in the first quarter of this year, achieving the highest quarterly performance since its founding. Analysts attribute the profit increase to portfolio diversification driven by the bank’s rising net interest margin (NIM), improved performance in non-bank sectors, and cost-cutting efforts.
On the 23rd, Shinhan Financial announced a net profit of 1.1919 trillion KRW for the first quarter, marking a 27.8% increase compared to 932.4 billion KRW a year ago.
The group’s total assets reached 618.8 trillion KRW, up 7.0% from 578.2 trillion KRW a year earlier. The non-performing loan (NPL) ratio stood at 0.56%, the Basel III (BIS) capital adequacy ratio was 15.9%, and the common equity tier 1 (CET1) ratio was 11.9%, maintaining both asset soundness and capital adequacy at stable levels.
Shinhan Financial stated, “The key feature of this performance is that the group’s net profit has leveled up based on the fundamental strength of both banking and non-banking sectors. The banking sector’s results improved through an early asset growth strategy and a net interest margin that has improved for the first time in two years, while the fruits of a consistently pursued non-bank-centered growth strategy over the past four years have begun to become visible.”
First, net profits from both banking and non-banking sectors showed balanced growth, upgrading both scale and quality. The group’s net profit was 1.1919 trillion KRW, and excluding a one-time expense of 53.2 billion KRW related to the Lime Fund, the net profit was approximately 1.2 trillion KRW.
The group’s interest income grew 5.7% year-on-year due to stable loan growth and a rebound in net interest margin, while fee income also surged 40.4% year-on-year, driven by revenue growth efforts centered on non-bank sectors, continuing a strong growth trend.
In particular, the profit contribution from non-bank sectors rose significantly to 48% through improved performance and cost-cutting efforts by major non-bank affiliates such as card, securities, life insurance, and capital companies, achieving balanced growth between banking and non-banking sectors.
Additionally, the rebound in net interest margin for both the group and the bank sustained the group’s core profit growth.
Over the past two years, the accumulation of earning assets through double-digit loan growth and the rebound in net interest margin led to a 5.7% increase in the group’s interest income compared to a year ago. The group and bank net interest margins each rebounded by 5 basis points quarter-on-quarter through profitability-based loan management and an increase in core liquidity deposits.
Specifically, Shinhan Bank’s loan growth rate in the first quarter was 2.5%, continuing steady growth following last year. To overcome the COVID-19 crisis, the bank flexibly managed existing financial support limits and proactively continued funding support for small and medium-sized enterprises (SMEs), resulting in a 3.4% growth in SME loans.
Furthermore, improved performance and expanded non-interest income bases of non-bank affiliates such as securities and capital companies diversified the composition and contribution of group profits.
Despite ongoing challenging domestic and international business environments, the non-bank sector recorded a quarterly record high net profit of 613.3 billion KRW, thanks to strengthened competitiveness in non-interest income.
Above all, in addition to Shinhan Card, which has driven growth in the existing non-bank sector, securities, capital, and other non-bank affiliates achieved balanced performance improvements, contributing to the group’s net profit growth and reaffirming the strength of the group’s stable portfolio composition.
The securities sector, which showed the most distinct performance improvement, saw commission income from brokerage increase by 92.4% and trading income rise by 194.9% year-on-year in the first quarter, supported by overall market trading activation. Additionally, investment banking (IB) fees increased by 17% through expanded deal participation based on the GIB platform, recording balanced performance improvements across all areas.
Capital also saw a 30.4% year-on-year increase in non-interest income through expanded investment assets, while interest income maintained stable growth by diversifying portfolio asset composition across various corporate finance sectors.
Moreover, stable cost management continued as various uncertainties that lingered last year were minimized. Through proactive risk management since last year, the group’s provision for loan losses in the first quarter decreased by 95 billion KRW compared to a year ago. The delinquency transition rate for card companies improved from 0.32% to 0.26%, maintaining the group’s loan loss cost ratio at a stable 22 basis points.
However, as risks from economic slowdown and financial instability remain visible, the group continues joint crisis response efforts and simultaneously works to minimize defaults ahead of the scheduled end of financial support programs.
Meanwhile, based on the results of the Lime Asset Management Credit Insured (CI) Fund Dispute Mediation Committee held on the 19th, the group recognized costs amounting to about 65% (previously about 30%) of the expected loss to faithfully fulfill the responsibilities of the selling companies.
Shinhan Financial said, “We will continue efforts to resolve uncertainties going forward,” adding, “Through this, we will do our best to restore market trust and become a sustainable growth company.”
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