By Na Jeong-ju
Staff Reporter
Shinhan Financial Group, the country's second largest financial services provider, has narrowed the gap with its archrival, Kookmin Bank, this year, threatening to overtake Kookmin in terms of assets and profitability.
In the first half of this year, Shinhan posted 1.54 trillion won in net profit to become the country's most profitable lender, followed by Kookmin with 1.42 trillion won and Woori Bank with 1.34 trillion won. But in operating profits, Kookmin claimed the top position with 2.57 trillion won, followed by Shinhan with 2.26 trillion won.
Kookmin still continues to maintain an edge over other lenders, but the gap with the runners-up has narrowed significantly since the beginning of the year.
``Kookmin saw its profits plummet in the first half due to one-off factors, but it still has wider sources of income than its rivals,'' said Koo Kyong-hoi, an analyst at Hyundai Securities. ``However, as Shinhan has increased its profits based on business cooperation with its credit card unit, LG Card, Kookmin may find it more difficult to maintain its No.1 position.''
Shinhan also had seen its market capitalization increase to 21.7 trillion won as of Aug. 10 from 18.1 trillion won at the end of last year. During the same period, Kookmin's market capitalization had grown little at 24.8 trillion won.
As of the end of June, Kookmin held assets worth 221 trillion won, up 11.5 trillion won from the end of last year. Shinhan Bank increased its assets to 198 trillion won from 177 trillion won during the same period, while Woori Bank, a core unit of the Woori Financial Group, came in third with 195 trillion won in assets.
Hana Bank, the country's fourth largest lender, had 133 trillion won in assets as of June, followed by the Industrial Bank of Korea (IBK) with 119 trillion won assets.
``Domestic lenders have continued to engage in stiff competition to expand their size despite the negative outlook for their profitability,'' the Korea Institute of Finance said in a report. ``Since last month, their competition has become weaker and in the second half, banks will likely put a greater emphasis on improving profitability rather than on growing in size.''
The institute said Kookmin, Shinhan and other lenders may move to strengthen risk management capabilities in the latter half to improve their profitability instead of engaging in competition to expand their assets.
In outstanding balances of loans, Kookmin topped the list extending 146 trillion won as of June, followed by Shinhan Bank with 108 trillion won and Woori Bank with 104 trillion won.
Kookmin also had the largest outstanding deposits among local lenders at 146 trillion won. Shinhan came in second with 112 trillion won and Woori Bank third with 107 trillion won.
The average net interest margin of Korean banks, a key gauge of profitability, has fallen this year amid stiffer competition and dwindling core deposits, denting their profitability. Banks have competed to raise interest rates on deposit products and cut lending rates to attract more customers, resulting in a fall in the gap between lending and deposit rates.
The net interest margin of Kookmin recorded 3.54 percent in the second quarter of the year, falling from the 3.6 percent in the previous quarter. It used to hover at over 3.9 percent a year ago. Woori Bank also saw a 0.02-percentage point fall in its net interest margin to 2.45 percent in the second quarter.
Analysts forecast the rivalry between Kookmin and Shinhan will continue, saying no one can be sure whether Kookmin will be able to cement its position as the country's top lender.
``It's uncertain whether Kookmin will be able to maintain the first place in assets and profitability this year as it has yet to secure its competitive edge over Shinhan in core businesses such as interest margins,'' said Han Jung-tae, an analyst at Mirae Asset.