Performance Outlook of 4 Major Financial Holding Companies Last Year
Expected Net Profit 16.3 Trillion → 15.9 Trillion, 2% Drop in Half a Month
Government's Soundness Policy Pressures Consumer Finance
1.6 Trillion Interest Support for Self-Employed Reflected from Last Year's 4Q
The expected net profits of major domestic financial holding companies are being revised downward one after another. This is interpreted as being influenced by the reflection of non-recurring expenses used to ease the interest burden on self-employed and small business borrowers, which is part of the government's strongly promoted 'win-win finance,' in the projected financial statements, following additional provisions for loan loss expenses due to adjustments in Loss Given Default (LGD).
On the 18th, Asia Economy analyzed the expected net profits attributable to controlling shareholders on a consolidated basis for last year of the four major financial holding companies?KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group?using data from financial information provider FnGuide. The analysis showed that as of January this year, net profits decreased by 2.2% compared to the consensus at the end of December last year.
KB Financial's expected net profit consensus at the end of December last year was KRW 5.0504 trillion, but the current net profit is KRW 4.9524 trillion, a 1.9% downward revision. Shinhan Financial decreased from KRW 4.6662 trillion to KRW 4.5488 trillion, a 2.5% drop; Hana Financial went from KRW 3.7045 trillion to KRW 3.63 trillion, a 2.0% decrease; and Woori Financial also fell from KRW 2.8903 trillion to KRW 2.8282 trillion, a 2.1% decline.
Accordingly, the total expected net profit consensus for the four major financial holding companies dropped by KRW 352 billion, from KRW 16.3114 trillion to KRW 15.9594 trillion. Among the financial holding companies, Shinhan Financial saw the largest decrease of KRW 117.4 billion, followed by KB Financial (-KRW 98 billion), Hana Financial (-KRW 74.5 billion), and Woori Financial (-KRW 62.1 billion).
The decrease is even larger when compared to a month ago. As of the 15th of last month, the net profit consensus for the four major financial holding companies was KRW 16.7487 trillion. The consensus adjustment over one month approaches KRW 790 billion. Securities firms measuring the consensus are continuously lowering their expectations.
It is common for the major financial holding companies' fourth-quarter net profits to be revised downward reflecting severance pay and provisions, but experts view this year's adjustment as larger than usual. The analysis suggests that in addition to additional loan loss provisions due to LGD adjustments, the interest burden relief policy targeting self-employed and small business borrowers also had an impact.
Last year, the banking sector promised a total of KRW 2 trillion in livelihood financial support for small business owners while promoting win-win finance measures under government pressure. Banks themselves planned to invest KRW 1.6 trillion in interest refunds and KRW 400 billion in voluntary programs to support vulnerable groups. The core of the self-employed interest refund program is to support 90% of interest payments exceeding 4% for one year on loans up to KRW 200 million, with a maximum of KRW 3 million per borrower. Accordingly, KB Kookmin Bank committed KRW 372.1 billion, Hana Bank KRW 355.7 billion, Shinhan Bank KRW 306.7 billion, and Woori Bank KRW 275.8 billion.
The financial sector expects major banks to reflect up to 80% of livelihood financial support funds in the fourth quarter. Most of the self-employed interest support will be reflected in last year's performance, while borrowers with less than one year and voluntary program costs will be gradually reflected this year.
Along with the upward adjustment of LGD, the possibility of bond losses due to the workout (corporate financial restructuring) of Taeyoung Construction is also a variable. The four major banks have lent KRW 357.5 billion to Taeyoung Construction. Additionally, the situation requires consideration of investor compensation issues due to the stock-linked securities (ELS) incident tracking the Hong Kong H-Index.
Seol Yong-jin, a researcher at SK Securities, explained, "The fourth quarter of last year is expected to record poorer performance than usual," adding, "Due to additional loan loss provisions from LGD adjustments and cashback programs targeting small business borrowers, the overall annual performance of banks in 2023 will inevitably decline compared to 2022."
Although the consensus for major financial holding companies is expected to continue downward due to the government's soundness reinforcement stance and pressure to support livelihood finance, record-high performance is expected to continue thanks to high interest margins during the high-interest-rate period. In particular, the annual net profit of the four major financial holding companies reached a record high of KRW 15.7312 trillion in 2022, and it is highly likely to exceed the 2022 level last year as well.
Park Hye-jin, a researcher at Daishin Securities, analyzed, "In 2024, margin pressure will continue following last year, but loan growth is expected to improve, and above all, the burden of loan loss expenses will ease, leading to an overall increase in banks' performance."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
