Financial Holding Companies
The major Korean financial holding companies’ net profits are projected to reach one trillion won (US$941 million) this year, despite unfavorable factors such as low interest rates and support for enterprise restructuring. Experts are pointing out that in 2014 the financial sector will recover from this years’ low through the disposal of Non-Performing Loans (NPLs).
According to FnGuide and industry sources on October 21, the net profits of KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group are estimated to amount to 5.452 trillion won (US$5.136 billion) in 2013. The figure is a 26.8% decline from the 7.7118 trillion won (US$7.2722 billion) of last year.
Among them, only Shinhan Financial Group exceeded 2 trillion won in net profits, with 2.598 trillion won (US$2.450 billion). KB Financial Group (1.3768 trillion won, US$1.2969 billion), Hana Financial Group (1.1703 trillion won, US$1.1036 billion), and Woori Financial Group (1.383 trillion won, US$1.3014 billion) are predicted to keep 1 trillion won in net profits.
Initially, the financial industry anticipated that those companies’ net profits would be drastically reduced, owing to a decrease in the bank loan-deposit margin caused by low interest rates this year, and the NPL charge-off arising from restructuring. However, as the net profits of all the major financial holding companies are forecast to surpass 1 trillion won, their better-than-expected performance is considered to have led to the result.
Industry analysts are saying that the less disappointing result is mainly due to the four major firms’ focus on stability in business. For example, they cut sales costs and management expenses, and branches at a competitive disadvantage were amalgamated into larger units.
Lee Chang-sun, researcher at LG Economic Research Institute, commented, “Last year, financial holding companies’ profits skyrocketed, which was unprecedented. But their annual revenues dropped this year.’" He went on to say, “Reduced profits this year appear to be influenced by a reduction in banks’ loan-deposit spread, resulting from economic contraction.”
Lee concluded by saying, “At the end of the day, their net profits are affected by economy and interest rate movements. Next year, their annual revenues are likely to grow on account of the rising demand for loans, and an improvement in banks’ loan-to-deposit ratios stemming from interest rate hikes.”