Corporate Finance Grown with Effort Rivals Core Business... Capital Companies Smile

Shinhan Capital Reports Q1 Net Profit of 108.6 Billion KRW

[Asia Economy Reporter Yu Je-hoon] Capital subsidiaries of major domestic financial holding companies continue to show steady growth. This contrasts with the declining or stagnant performance of major non-bank subsidiaries such as securities and card companies due to the impact of the base interest rate hike. Industry insiders attribute this to capital companies shifting their business focus to corporate and investment finance amid intensifying competition in their core business areas such as automobile installment financing.

According to the financial sector on the 26th, the net income of capital companies under the four major domestic financial holding companies (KB, Shinhan, Hana, Woori) in the first quarter increased by about 40-80% compared to the previous year. Shinhan Capital recorded an 83.6% increase, KB Capital 54.5%, Hana Capital 48.1%, and Woori Financial Capital 40.0%.

Shinhan Capital posted a net income of 108.6 billion KRW in the first quarter, up 83.6% year-on-year. This surpassed the net income of Shinhan Financial Investment, which was hit hard by the securities market downturn caused by the base interest rate hike, at 104.5 billion KRW. Shinhan Financial explained that this was due to increased interest income from loan assets and increased income related to marketable securities. Hana Capital also posted a net income of 91.3 billion KRW, supported by growth in the investment finance sector, increased interest income, and improved gains on sales evaluation. As a result, Hana Capital surpassed Hana Card (54.6 billion KRW) to become the third largest cash cow within the group.

The capital industry, which had concerns about profitability deterioration due to rising funding costs following the base interest rate hike, was able to achieve good results thanks to the strong performance of the corporate and investment finance sectors, which have expanded their market share over several years. As the card industry, armed with relatively low funding costs, accelerated its penetration into the core automobile installment financing and retail sectors, the capital industry shifted its business focus to corporate and investment finance.

In the case of Shinhan Capital, it restructured its business in 2020 by transferring the retail sector (automobile, jeonse deposit loans, etc.) to Shinhan Card and focusing on corporate and investment finance. As of the first quarter, Shinhan Capital's operating assets consisted of 7.5379 trillion KRW in general loans and factoring-related assets, including general corporate loans and real estate loans (PF), accounting for 67% of total assets. Marketable securities assets also reached 223.9 billion KRW.

Hana Capital has also recently been expanding its investment finance sector, moving away from a business structure focused on automobile installment financing. As of the end of last year, the investment finance sector accounted for about 33% (approximately 4.33 trillion KRW) of total assets. A financial sector official stated, "Competition among industries centered on automobile installment financing is expected to intensify this year as well, so the search for new revenue sources in corporate and investment finance will continue for the time being."