NIM Management + Solid Non-Bank Portfolio
As the four major domestic financial holding companies (KB, Shinhan, Hana, Woori) prepare to announce their third-quarter earnings, KB Financial Group is expected to be the only one to continue its growth momentum and dominate the market. This is attributed to the bank's management of net interest margin (NIM) and the steady growth of the non-bank sector led by its insurance subsidiaries.
According to financial information analysis firm FnGuide on the 5th, the consensus net income attributable to controlling shareholders for KB Financial in the third quarter was estimated at 1.3675 trillion KRW. This represents a 7.43% increase compared to the same period last year (1.2713 trillion KRW).
In contrast, the other financial holding companies, excluding KB Financial, are expected to experience negative growth. Shinhan Financial is projected to report a net income of 1.2326 trillion KRW, a 22.70% decrease. This decline is due to a base effect from the sale of Shinhan Investment Securities’ building in the third quarter of last year. Excluding this, net income is expected to show a slight increase.
Hana Financial and Woori Financial are also estimated to record net incomes of 953.3 billion KRW and 847.5 billion KRW, down 15.03% and 5.81%, respectively. Consequently, the combined net income of the four major financial groups is predicted to decrease by 9.96% year-on-year to 4.4409 trillion KRW.
The industry evaluation attributes KB Financial’s dominant position to its management of NIM and a relatively sound non-interest income structure. Initially, it was widely expected that KB Kookmin Bank’s NIM would decline by 3 to 4 basis points (1bp=0.01%) in the third quarter, but recent increases in demand deposits and margin expansion due to rising market interest rates have offset this decline.
Hana Securities recently reported, "If the current trend continues, KB Kookmin Bank’s NIM is not expected to decline significantly in the fourth quarter, and the annual NIM is projected to rise by 11 basis points year-on-year to 1.84%. Considering that other financial holding companies’ annual NIMs are expected to maintain last year’s levels or decline by 1 to 2 basis points, KB Financial is demonstrating outstanding margin management capabilities."
Another key factor is KB Financial’s solid non-bank portfolio centered on its insurance subsidiaries, compared to competitors. This comes amid increased profitability for insurers following the adoption of International Financial Reporting Standard (IFRS) 17. IFRS 17 requires insurance liabilities to be measured at fair value based on market interest rates at the reporting date rather than at contract inception cost.
BNK Investment & Securities stated yesterday, "KB Financial’s non-interest income is expected to increase by 53.3% year-on-year to approximately 980 billion KRW, driven by strong fee income, expanded profit contribution from the insurance sector due to IFRS 17 adoption, and a base effect from the sharp decline in asset prices."
KB Financial’s insurance subsidiaries, KB Insurance and KB Life Insurance, also played a pivotal role in maintaining its leading bank status by generating a combined net income of about 750 billion KRW in the first half of this year. While Shinhan Financial and Hana Financial also have portfolios covering both life and non-life insurance companies, their non-life insurers (Shinhan EZ Insurance, Hana Insurance) are relatively smaller in scale. Woori Financial does not have any insurance subsidiaries and has been exploring acquisitions of insurance companies this year.
A financial industry insider said, "KB Financial, due to the nature of its banking business, has traditionally had a large volume of small demand deposits, which helps manage NIM relatively well. Unlike other financial companies, its overall portfolio including insurance, securities, cards, and capital is solid, supporting the improvement in non-bank sector performance."
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