Amid forecasts that the profitability of the banking sector will gradually decline next year, there is still an analysis suggesting a bright investment outlook for major bank holding companies. As central banks around the world begin to pivot their policies in earnest, improvements in the performance of non-bank subsidiaries are expected, and financial holding companies are actively responding by strengthening risk-weighted assets (RWA) management to expand shareholder returns.
According to the financial sector on the 13th, at the '2025 Economic and Financial Outlook Seminar' held by the Korea Institute of Finance on the 12th, an analysis was presented that the banking sector is likely to experience a decline in profitability next year due to interest rate cuts and other factors. Kim Young-do, head of the Banking Research Division at the Korea Institute of Finance, stated, "Banks tend to see a decline in profitability during periods of falling interest rates, and the stability of deposits may decrease due to money movement. With a surge in household loans and strengthened market regulations, competition in the corporate loan market will intensify, leading to an unfavorable management environment within the industry."
Forecasts that banking sector earnings will fall short of expectations are also emerging in the securities industry. Due to the slowdown in economic growth and regulatory measures on household debt, key indicators such as net interest margin (NIM) and loan growth rate, which are central to bank performance, are expected to continue declining.
In a recent report, NH Investment & Securities predicted that the 2025 NIM for five banks (KB Kookmin, Shinhan, Hana, Woori, and IBK Industrial Bank) will fall by 0.06 to 0.12 percentage points compared to this year, and the annual loan growth rate will slow from 6.9% to 4.7%. As a result, the annual net interest income of these five banks is expected to decrease by 0.7% compared to this year.
However, there is an analysis that the investment outlook for each bank holding company is not entirely negative. First, the performance of non-bank subsidiaries, which did not shine during the high-interest-rate period, is expected to improve. The non-interest income of the five holding companies (KB, Shinhan, Hana, Woori, and IBK) is predicted to increase by 5.9% to reach 12.4 trillion won next year. This is due to increased bond valuation gains and fee income as interest rates fall, as well as expected growth in earnings from securities subsidiaries.
Another main reason is that each company has announced plans to enhance corporate value and promised to expand shareholder returns. Recently, the four major holding companies stated that they will manage the RWA growth rate within 4-6% next year. RWA directly affects common equity tier 1 (CET1), which is key to shareholder returns. They also plan to improve the risk-weighted asset return (RoRWA) while minimizing RWA growth.
Accordingly, shareholder return policies are expected to continue for the time being. The shareholder return ratio of the five companies is predicted to rise by 4 percentage points from this year to 40.5%. Each company has declared through recent value-up plan disclosures that they will raise the shareholder return ratio to 50% by 2027.
Jung Joon-seop, a researcher at NH Investment & Securities, said, "Although major bank stocks have risen sharply since the beginning of 2024, the important point is that bank stocks are still subject to significant discounts. The ongoing share buybacks and cancellations are also an advantage, as the reduction in the number of shares sharply increases the per-share value. In the future, shareholder return attractiveness is expected to be further highlighted in a low-interest-rate environment."
Since 2018 until June of this year, a total of 14,426 ATMs have been removed from banks over approximately six years. On the 24th, ATMs from commercial banks are installed on a street in Seoul. Banks are rapidly withdrawing ATMs, citing maintenance costs such as ATM management and heating and cooling expenses. Photo by Jo Yongjun jun21@
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