Strong Finish to Record Performance in Q3?…Rising Expectations for Regional Banks' Earnings Amid Loan Growth and Other Prospects

Loan Growth, Downward Stabilization of Loan Loss Costs, and Other Effects
"Respect for Financial Institutions' Autonomy" Message from Authorities Also Noted

[Asia Economy Reporter Kim Hyo-jin] Amid the somewhat improved outlook for banks' earnings, which had been uncertain due to household loan regulations and other factors, there is a growing sense of optimism particularly toward regional banks.

Regional financial holding companies, which demonstrated strong momentum by achieving record-high net profits in the first half of the year, are expected to further accelerate their growth thanks to loan expansion and a decrease in bad debt expenses.

According to the financial sector on the 27th, there is a rising view, especially among investors, that the third-quarter earnings of regional financial holding companies focusing on banks such as BNK, DGB, and JB Financial will significantly exceed market expectations.

Choi Jung-wook, a researcher at Hana Financial Investment, forecasted BNK Financial's third-quarter net profit at 245 billion KRW and DGB Financial's net profit at 134 billion KRW. These figures represent increases of 79.6% and 47.1%, respectively, compared to the same period last year, surpassing market consensus by about 16-17%. JB Financial is expected to record a net profit of 131 billion KRW in the third quarter, up 19.0% year-on-year.

The basis for these optimistic forecasts includes ▲ higher loan growth rates compared to major banks ▲ a more lagging but stabilizing downward trend in bad debt expenses compared to major banks ▲ and a boom in real estate project financing (PF) loans.

The extension of loan maturities and interest payment deferrals for small and medium-sized enterprises and small business owners affected by COVID-19 has been further prolonged, making it highly unlikely that banks will conservatively set aside additional provisions within the year, which is seen as a positive factor for earnings.

If the loan maturity extension and interest payment deferral programs had normalized, the need for immediate response to potential defaults would have increased, making it difficult to rule out the possibility of additional provisions.

Financial Services Commission Chairman Ko Seung-beom recently attracted attention from the financial sector and market by presenting a market-friendly policy and supervision concept that respects the creativity and autonomy of financial companies, separate from the ongoing need for continuous loan management, during a meeting with financial holding company CEOs.

Chairman Ko’s view is to fundamentally respect the autonomous decisions of financial companies regarding management judgments such as interest rates, fees, and dividends. This more relaxed stance on issues like dividends, which had been a source of conflict between financial holding companies and authorities until recently, is expected to raise market expectations further.

"Management Decisions, Respect for Financial Companies' Autonomous Judgment"

The stock prices of these financial holding companies closed on the 24th with gains ranging from 2.29% to 2.83%. This rise outpaced major financial holding companies such as Hana Financial, which rose 1.24%, Woori Financial, which increased 0.45%, and Shinhan Financial, which gained 1.80%. Among bank stocks, JB Financial saw the largest increase during the third quarter, rising about 9.0%. JB Financial also recorded the largest gain among banks in the second quarter, with a 15.0% increase.

Researcher Choi analyzed, "The news of final discussions on issuing real-name accounts with small and medium-sized virtual asset exchanges by bank subsidiaries such as Jeonbuk and Gwangju Banks is also presumed to have acted as a positive factor for the stock prices." BNK Financial’s stock price rose 3.0% during the third quarter. Although DGB Financial’s stock price retreated 1.0%, it is considered to have performed well given market headwinds such as loan regulations by financial authorities.

BNK Financial Group posted a record half-year net profit of 468 billion KRW in the first half. DGB Financial also recorded a half-year record net profit of 278.8 billion KRW, and JB Financial achieved a half-year record net profit of 278.4 billion KRW.