Banks that recorded their highest-ever performance in the first half of this year are expected to achieve record-breaking results again in the third quarter. This is attributed to the series of loan interest rate hikes by banks due to the financial authorities' household debt management policy, combined with last-minute loan demand ahead of the implementation of the second phase of the stress Debt Service Ratio (DSR). If this trend continues, it is also expected that the highest-ever consolidated net profit for this year will be easily achieved.
According to financial information provider FnGuide on the 20th, the third-quarter net profit forecast for the four major financial holding companies?KB, Shinhan, Hana, and Woori?was estimated at 4.724 trillion KRW. This represents an approximately 7% increase compared to the same period last year (4.4222 trillion KRW).
The most notable increase in net profit compared to the same period last year is expected from Shinhan Financial Group, with 1.3483 trillion KRW, up 13.10% from 1.1921 trillion KRW in the previous year. Following that, KB Financial is projected to increase by 9.28% to 1.5013 trillion KRW from 1.3787 trillion KRW last year. Hana Financial Group’s third-quarter net profit forecast is 1.0248 trillion KRW, a 7% increase from 957 billion KRW in the same period last year. However, Woori Financial Group’s third-quarter net profit estimate is 850.6 billion KRW, down 5.42% from 899.3 billion KRW in the previous year.
Initially, it was widely expected that third-quarter earnings would fall short of the record-breaking first-half results, but the financial authorities’ loan regulations have become a variable. When the financial authorities urged banks to curb household debt, banks raised loan spread rates to reduce household debt. However, due to the "all-in" borrowing atmosphere and last-minute demand ahead of the second phase of DSR implementation, the housing market remained buoyant, and household loans surged sharply until August. While market interest rates fell, banks’ funding costs decreased, but loan interest rates remained high, resulting in an increase in net interest margin (NIM). Additionally, assets (loans) increased significantly, which helped banks’ profitability.
According to the financial sector, as of August, the outstanding loan balance of commercial banks stood at 2,442 trillion KRW, of which household loans accounted for 1,130 trillion KRW. Household loans (including mortgage loans) increased by 9.3 trillion KRW as of August, with mortgage loans rising by 8.2 trillion KRW, marking the largest monthly increase ever. Apartment sales transactions also reached 55,000 in August, exceeding the recent 12-month average of 37,000. Considering the usual two to three months lag between transaction timing and loan execution, the increase in mortgage loans is likely to continue through October and November.
Doha Kim, a researcher at Hanwha Investment & Securities, stated, "Most of the net loan increase in August was mortgage loans, which was caused by concentrated loan demand to evade regulations as the financial authorities suddenly postponed the introduction of the second phase of stress DSR to September."
Banks, which have faced criticism for profiting from interest, are in an uncomfortable position despite record-breaking results. A representative from a commercial bank said, "Even if we achieve record profits, it is an uncomfortable situation due to criticism that only banks benefit from loan regulations," adding, "If the base interest rate is lowered and loan regulations are strengthened, the profit growth rate will also slow down."
Eungap Kim, a researcher at Kiwoom Securities, analyzed, "Although there are concerns that NIM will decrease as the timing of the base rate cut approaches due to the US rate cut, the loan growth rate is higher than expected, which is defending against the decline in interest income growth rate. Despite the variable of one-time costs in the second half, the scale of ordinary profit is steadily increasing, so it is expected that the highest-ever consolidated net profit will be recorded this year."
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