Financial Holding Companies
The net profit for the four major financial holding companies, KB, Woori, Hana, and Shinhan Financial Groups, has decreased drastically. The financial industry is expected to slow down in general. It is most likely for more branches to merge or shut down, while internal restructuring and business closure are also possible.
According to the industry, the total net profit of the four major financial holding companies from the first half of 2013 is 2.5262 trillion won (US$2.3455 million), which dropped 50.4% compared to last year’s 5.1001 trillion won (US$4.7431 billion). It is literally cut in half.
Woori Financial Group recorded 358.3 billion won (US$333.2 million) in its net profit for the first two quarters of this year, which is 62.9% lower than last year’s 967.9 billion won (US$900.1 million). KB Financial Group’s profit dropped 50.3% to 575 billion won (US$534 million) when compared to last year’s 1.1566 trillion won (US$1.0739 billion).
Shinhan Financial Group did comparatively well, recording 1.363 trillion won (US$1.2676 billion) in net profit, but still saw a decrease of 29%. Hana Financial Group’s net profit dropped to 556.6 billion won (US$517.6 million), which is 63.9% lower than last year’s 1.5161 trillion won (US$1.4100 billion). As for Hana Financial Group, it bought out Korea Exchange Bank last year and its Q1 net profit of 2012 (1.928 trillion won, US$1.793 billion) included the additional business rights as a part of it.
Financial groups believe low interest rates are causing the decrease in profit, in addition to real estate and industrial business recessions.
Choi Soo-hyun, head of the Financial Supervisory Service, held a conference for the group chairmen on September 25 and said, “Due to internal and external conditions, our economy is now entering an unprecedented low growth, low interest generation which is causing negative impacts on growth and profit in the overall financial industry,” and warned, “If profit reductions of financial companies continue long-term, they can damage the soundness of the companies.”
The problem is that not a lot of change is expected for the second half of this year. Low interest rates are expected to continue, and domestic economic recovery is progressing rather slowly.
The financial authorities have also recognized this and requested the financial groups to enforce risk management and closure of branches with deficits, etc. Accordingly, some banks will shut down up to 80 branches sometime within the second half of the year.
Hana Bank is closing 25 bank sites, while Kookmin Bank will shut down 12 branches. NH Bank will relocate 4 of its branches while completely getting rid of 1 branch. Woori Bank merged 15 of its branches in the first two quarters of this year, and plans on merging 8 more in the latter two quarters. Citibank closed down 15 branches during the first half of this year, and will do the same for 5 more in the second half. Shinhan Bank closed 14 branches in the first half of this year.
The financial industry anticipates more closures as profits have dropped in half. One financial associate said, “Since the profit is continuously dropping this very moment, it is obvious that the second half of this year will not be any better, so more business closures are coming.”
Thus, restructuring is becoming an issue. Since the number of branches is decreasing, some see it as inevitable for some manpower to be laid off, but heavy protest from the unions is expected as well.