Bank NIM Relatively Solid vs. Peers
The authors are analysts of Shinhan Investment Corp. They can be reached at sh.kim@shinhan.com and jongseon@shinhan.com. -- Ed.
1Q20 review: Earnings surprise with NP of KRW657bn (+20.3% YoY)
Hana Financial Group delivered an earnings surprise for 1Q20, with net profit of controlling interests of KRW657bn far exceeding the market’s and our expectations. Non-interest income surpassed our estimate by a wide margin, while loan loss provisions came in below expectations. The group booked KRW109.1bn in losses on non-monetary items on the rise in USD/KRW exchange rate, but recorded KRW29.7bn in gains on sales of loans. Other operating income was also better than expected. The subsidiary Hana Financial Investment reported solid net profit ofKRW46.7bn.
KRW-denominated loans increased 2% QoQ on the 14.4% QoQ rise in loans to large enterprises. Bank NIM was relatively solid vs. peers, down only 2bp QoQ mainly due to the increase in low-cost money market deposit accounts (MMDAs). With no one-off transfer/reversal of provisions, ordinary provisions improved by 26% YoY to KRW99bn in1Q. SG&A expenses decreased 12.1% YoY on preemptive recognition of early retirement expenses (for employees subject to the wage peak system, etc.) in 2019.
2Q20 NP of controlling interests forecast at KRW604.4bn (-8.2% YoY)
The group’s loan delinquency rate and NPL ratio remained flat at 0.21% (+1bp QoQ) and 0.47% (-1bp QoQ), respectively, at end-March. However, we need to keep monitoring loan quality, given the 10.6% QoQ rise in special mention loans in1Q. NIM is forecast to drop by 2-3bp QoQ in 2Q. Lower NIM and higher bad debt expenses should drive down net profit of controlling interests by 8.2% YoY to KRW604.4bn.
Interim dividend uncertain, possible postponement to the year-end
We see a possibility of the group postponing its interim dividend payment to the end of the year. DPS forecast needs to be revised down slightly, given that provisioning for challenges expected from 2Q onwards due to the full-fledged impact of COVID-19 on the real economy will likely be booked in 4Q. Nevertheless, we estimate dividend yield of at least 7-8% for 2020 at current share price levels.