Park Jae-hyuk is a seasoned journalist who has provided comprehensive coverage of South Korea's corporate dynamics, economic policies, industry challenges and the global positioning of Korean companies. Based on the articles he has written since joining The Korea Times in 2016, his investigative approach has helped readers understand corporate governance, economic trends and business strategies shaping South Korea’s economy.
Shinhan widens gap with KB in Q1 earnings
By Park Jae-hyuk
Fitch revises outlook on banks to negative
By Park Jae-hyuk
Shinhan Financial Group has widened the gap with its rival KB Financial Group, posting a 932.4 billion won ($757 million) net profit in the first quarter, up 1.5 percent from a year earlier, its regulatory filing showed Sunday.
In contrast, KB suffered a 13.7 percent drop to 729.5 billion won in its first-quarter earnings, due to the growing volatility in the financial market sparked by the COVID-19 pandemic.
Shinhan's outcome was an earnings surprise exceeding the market estimation of 868.5 billion won. It attributed the satisfactory earnings to its acquisition of the remaining 41 percent stake in Orange Life Insurance and several one-off factors.
In their benchmark banking business, Shinhan gained 626.5 billion won, while KB earned 586.3 billion won.
Their gap was especially wide in the brokerage sector, as KB Securities turned a loss, suffering a 21.4 billion won net loss over the sharp ups and downs of global equity-linked securities (ELS). Although Shinhan Investment showed a 34.1 percent year-on-year decline, it gained 46.7 billion won in net profit.
“Based on our diversified business portfolio, we posted solid first-quarter earnings,” a Shinhan Financial Group official said. “However, the uncertainties could grow further following the coronavirus pandemic in March. Without one-off factors and the acquisition of Orange Life shares, the first-quarter earnings stood at around 850 billion won.”
The group expected the fallout of COVID-19 will come to the fore starting from the second quarter.
“We have continued our efforts to overcome the crisis with our group's crisis management plans and strategies to strengthen our basic soundness,” the Shinhan official said.
KB also promised resilience to overcome any crisis, saying a “black swan” occurrence such as the COVID-19 pandemic could happen again at any time in the future.
Against this backdrop, Fitch Ratings revised its outlook on banking units of Shinhan and KB to negative from stable.
“The negative outlook reflects our expectation that the economic fallout due to measures to contain the coronavirus outbreak in Korea and globally would put mounting pressure on Shinhan and Kookmin's intrinsic creditworthiness over the next two years,” the global credit rating agency said in a press release. “This is despite extensive relief measures introduced by local authorities over the past two months to mitigate the impact on the economy and banking sector.”
According to Fitch, Shinhan's exposure to service sectors with high person-to-person contact, such as retail, lodging and restaurants, comprised 15 percent of its loans at the end of 2019, slightly higher than the commercial bank average of 14 percent.
The rating agency viewed such exposures as most vulnerable to deterioration as the social-distancing measures continue.
As for KB Kookmin Bank, Fitch warned of weaker loan performance of households and self-employed individuals, who collectively accounted for 75 percent of the bank's loans, citing the major local peer average stood at 65 percent.
Fitch maintained its stable outlook on Hana and Woori banks, saying this outlook reflects its continued belief of an extremely high probability of support from the Korean government, if required.
Hana Financial Group, which ranked third in the 2019 earnings, posted a 657 billion won net profit in the first quarter, up 20.3 percent from a year earlier, thanks to the increasing interest margins in China and Indonesia.
Woori Financial Group which took the fourth-highest earnings in 2019 will announce its first-quarter performance Monday.