Q2 Net Profit Improved 5% YoY, Exceeding Consensus
Operating Profit Estimate Up 4% to 6.2 Trillion
Bank Loan Growth Strong in Apr-May... Q2 Net Interest Margin Also Positive
The major financial holding companies, which recorded sluggish earnings due to a one-time provision set for large losses from equity-linked securities (ELS) tracking the Hong Kong H Index (Hang Seng China Enterprises Index·HSCEI), are expected to shake off most of the various adverse factors and get back on track in the second quarter of this year.
According to financial information provider FnGuide on the 19th, the consensus net profit for the second quarter of this year for the four major financial holding companies?KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group?based on the last three months, is estimated to reach 4.5041 trillion KRW, an improvement of more than 5% compared to the same period last year. The operating profit estimate was compiled at 6.2466 trillion KRW, up 4% year-on-year.
Among the major financial holding companies, Woori Financial Group’s net profit is expected to improve the most significantly due to the base effect from last year. Woori Financial’s second-quarter net profit is expected to increase by 29% year-on-year to 806.4 billion KRW. Operating profit is estimated at 1.1195 trillion KRW, a 25% improvement.
KB Financial, which lost its leading bank position to Shinhan Financial in the first quarter due to a large ELS-related provision, is estimated to have a second-quarter net profit consensus of 1.4488 trillion KRW, a 3.4% decrease compared to the same period last year, but it is expected to regain the top spot by surpassing Shinhan Financial’s estimate of 1.2973 trillion KRW.
KB Financial’s first-quarter net profit was 1.0491 trillion KRW, down 30% from a year earlier, ceding the top spot to Shinhan Financial. This was due to KB Kookmin Bank recording 862 billion KRW as liabilities for compensation costs to Hong Kong ELS customers, the highest among major commercial banks. KB Financial’s second-quarter operating profit consensus is 1.9923 trillion KRW, down 3% year-on-year, but it is estimated to be more than 170 billion KRW higher than Shinhan Financial’s 1.82 trillion KRW, which increased by 4.8%.
Jeong Tae-jun, a researcher at Mirae Asset Securities, explained, "KB Financial’s net profit appears to have improved this year due to increased interest income, decreased non-interest income, and improved credit costs. Last year, the base effect was formed due to decreased non-interest income from win-win finance and increased credit costs from large provisions, and since the impact of ELS compensation in the first quarter of this year has also disappeared, continuous profit growth is possible."
Hana Financial is expected to record less than 1 trillion KRW in earnings again this year, following last year. Hana Financial’s second-quarter net profit is estimated to increase by 3.6% year-on-year to 951.6 billion KRW.
Additionally, the net profit forecast for the four major financial holding companies for the first half of this year is 8.7487 trillion KRW, down 4.7% compared to the same period last year. However, this reflects the impact of Hong Kong ELS-related liabilities in the first quarter, and excluding these ELS-related liabilities, the first-quarter net profit forecast for these financial holding companies could exceed 10 trillion KRW for the first time.
Choi Jung-wook, a researcher at Hana Securities, analyzed, "Although the scale of additional provisions for project financing (PF) is a key factor, considering the favorable bank loan growth rate in April and May, the relatively small decline in net interest margin (NIM) in the second quarter, and the possibility of reversal of Hong Kong ELS provisions, the second-quarter earnings of financial holding companies are increasingly likely to exceed consensus, contrary to market concerns."
In fact, the loan growth rate in the banking sector improved in the second quarter compared to the first quarter. According to the financial market trends announced by the Bank of Korea in May, the total bank loans increased by 0.5% in May compared to April, amounting to 13 trillion KRW, and the net increase for April and May combined was 29.8 trillion KRW, surpassing the first quarter’s net increase of 28.6 trillion KRW. If this trend continues in June, the loan growth rate for the second quarter is estimated at 1.9%.
Kim Jae-woo, a team leader at Samsung Securities, said, "Domestic banks’ earnings are expected to show a favorable improvement due to steady growth in interest income and the base effect from ELS-related losses in the first quarter," adding, "The shift from a decline to an increase in other loans, including relatively high-interest-rate unsecured loans, is expected to contribute positively from the perspective of bank NIM."
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