Financial Holding Companies Set New 'Record' Performance Again... Balanced Growth Effect Between Banks and Non-Banks Evident

Annual Net Profit: KB and Shinhan Approaching 4 Trillion, Hana Nearing 3 Trillion

[Asia Economy Reporters Sunmi Park, Seungseop Song]Amid concerns over COVID-19 and rising household debt, the five major financial holding companies announced record-breaking third-quarter earnings, surpassing their entire performance from last year. Balanced growth between banking and non-banking sectors allowed them to benefit from both increased loan profits during the interest rate hike period and expanded fee income.

◆Thresholds for the ‘4 trillion club’ and ‘3 trillion club’= According to the financial sector on the 27th, the cumulative third-quarter net profit of the five major financial holding companies?KB, Shinhan, Hana, Woori, and NH Nonghyup?reached a total of 14.0361 trillion KRW, marking a 33.3% increase compared to the same period last year. All five financial holding companies have already surpassed last year’s full-year records by the third quarter, signaling the possibility of achieving their highest-ever annual performance this year.

KB leads with a cumulative third-quarter net profit of 3.7722 trillion KRW, followed by Shinhan (3.5594 trillion KRW), Hana (2.6815 trillion KRW), Woori (2.1983 trillion KRW), and NH Nonghyup (1.8247 trillion KRW). At the current growth pace, KB and Shinhan are likely to exceed 4 trillion KRW in annual net profit for the first time this year. Hana Financial Group is also challenging its first 3 trillion KRW-level performance. Woori Financial Group recorded the highest net profit growth rate among the five, at 92.8%, earning recognition as the fastest-growing company in a short period.

The key to the five financial holding companies’ record profits lies in their diversified portfolio efforts, which enabled balanced earnings realization in both banking and non-banking sectors. The banking sector, which contributes the most to group profits, saw a sharp increase in interest income due to the combined effects of rising household debt and interest rates. Thanks to the banking sector’s strong performance, the combined cumulative third-quarter interest income of the five financial holding companies reached 31.314 trillion KRW, a 12.2% increase year-on-year. Although banks tightened loan limits and raised interest rates to manage total household loans, strong demand for essential loans such as jeonse (key money deposit) loans had a significant impact. Except for Nonghyup Bank, which closed new household loan windows early to slow loan growth, all four other banks recorded double-digit net profit growth rates in the third quarter.

In the context of ‘debt investment’ (bit-tu, borrowing to invest) and a recovering consumption atmosphere, stable fee income growth was maintained, supporting solid performance from non-banking affiliates. Woori Financial Group’s non-interest income growth rate reached 57.2%, driven by strong corporate investment banking (CIB) profits and improved asset management sales. NH Nonghyup (30.2%) and KB (23.9%) also performed well, benefiting from increased securities commission income and fee income growth.

◆Improved soundness...dividends and digitalization remain challenges= Despite the prolonged COVID-19 situation, soundness indicators improved steadily due to credit policies focused on soundness and proactive risk management efforts. The non-performing loan (NPL) ratio was lowest at Woori Financial Group with 0.31%, followed by Hana (0.33%), KB (0.36%), NH Nonghyup (0.37%), and Shinhan (0.44%). This represents an improvement of 0.03 to 0.11 percentage points compared to the end of last year.

As the likelihood of record-high earnings for financial holding companies this year increases, quarterly dividends have also emerged. Shinhan Financial Group announced alongside its earnings report that it would set an annual dividend payout ratio of 30% and become the first in the financial sector to pay dividends for the third quarter. The dividend was set at 260 KRW. Hana Financial Group is also considering quarterly dividends. Lee Huiseung, CFO of Hana Financial Group, stated, "We are preparing for dividends" and added, "We are internally reviewing amendments to the articles of incorporation to stabilize quarterly dividends."

Digitalization was identified as a common challenge for all financial holding companies. As non-face-to-face finance accelerates, the proportion of customers and revenue secured through digital platforms is increasing. KB Financial Group announced a strategy to become the number one financial platform through the fully revamped ‘KB Star Banking’ starting today. Shinhan Financial Group also prioritizes strengthening digital competitiveness and plans to continue platform innovation. Lee Sungyong, Chief Digital Officer (CDO) of Shinhan Financial Group, emphasized, "We will strengthen the MyData business" and added, "We plan to launch various applications such as delivery and health apps by building partnerships with diverse companies." Woori Financial Group, which achieved record earnings without a securities firm, plans to actively pursue mergers and acquisitions (M&A) prioritizing securities firms.

The outlook for fourth-quarter earnings is also positive. Although financial authorities are strengthening household debt management policies, interest margins are increasing. In particular, there is a high possibility of preemptive demand for loans before new regulations take effect next year, raising expectations for achieving the highest annual performance ever.