The three major regional financial holding companies (BNK, JB, DGB) are expected to receive mixed results for the second quarter. While BNK and JB Financial Holdings are maintaining a moderate upward trend in earnings, DGB Financial Holdings is facing the possibility of an 'earnings shock' due to real estate project financing (PF) risks from its subsidiaries.
According to financial information analysis firm FnGuide on the 16th, the consensus net profit attributable to controlling shareholders for DGB Financial in the second quarter was estimated at 75.5 billion KRW. This represents a 46.8% decrease compared to the previous year (141.8 billion KRW). The net profit size has been 'cut in half' compared to the previous year.
On the other hand, the performance of other regional financial companies is relatively solid. BNK Financial is expected to report a net profit of 214.5 billion KRW, up 9.5%, and JB Financial is projected to have a net profit of 169.2 billion KRW, up 3.9%. This growth rate in net profit is comparable to that of Hana Financial (4.5%), one of the four major financial holding companies (KB, Shinhan, Hana, Woori), and is not significantly disappointing.
The main reason for this gap is attributed to the real estate PF risk of Hi Investment & Securities, a subsidiary of DGB Financial, amid aggressive loan operations by its core subsidiary iM Bank (formerly DGB Daegu Bank) as it transitions to a commercial bank. As of the first quarter, Hi Investment & Securities’ contingent liabilities related to real estate PF amounted to 850.2 billion KRW, which is 76.6% of its equity capital. This level is more than twice the industry average estimate of 33%.
In the first quarter, Hi Investment & Securities also posted a loss of 4.9 billion KRW, turning to a deficit. This was due to the provision of 36.5 billion KRW for loan losses related to real estate PF. The company had also set aside 132.4 billion KRW in provisions throughout the previous year. Moreover, following the 'Future Policy Directions for the Orderly Soft Landing of Real Estate PF' announced by financial authorities in May, the amount of provisions Hi Investment & Securities must accumulate is expected to increase further.
BNK Financial and JB Financial are also expected to increase their provisions due to PF risks, but the growth rate is projected to be limited compared to DGB Financial. According to Mirae Asset Securities, BNK Financial’s loan loss expenses are expected to increase by 4.1% year-on-year, and JB Financial’s by 11.1%.
Jeong Tae-jun, a researcher at Mirae Asset Securities, stated in a recent report, "According to the PF soft landing measures announced by financial authorities in May, DGB Financial’s securities subsidiary is required to set aside large-scale PF provisions," adding, "Loan loss expenses in the second quarter are expected to increase by 62.5% compared to the previous quarter and by 107.3% year-on-year."
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