Yi Whan-woo is a Korea Times journalist primarily covering finance. He writes in-depth articles on macroeconomy and financial markets and previously covered sports, politics, diplomacy and inter-Korean affairs, among others. Feel free to contact him at yistory@koreatimes.co.kr.
Financial groups' 2023 earnings estimates lowered over HK-related ELS and project financing woes
By Yi Whan-woo
The four largest financial groups in Korea are bracing for losses due to their 2023 earnings as risks associated with their cash-generating banking arms are starting to cause problems, specifically their declining Hong Kong equity-linked securities (ELS) products as well as project financing issues in the domestic real estate market.
According to data from market tracker FnGuide, Tuesday, the four groups – KB, Shinhan, Hana and Woori – are expected to post 15.67 trillion won in yearly net income combined for 2023. If confirmed, the amount will represent a 0.66 percent decrease from 2022.
Back in 2022, the annual net income ticked up 9 percent year-on-year.
Each company usually announces its yearly earnings in early February.
The negative outlook comes as the banks are heavily involved in the sales of ELS, which pay out a return based on the performance of Hong Kong's Hang Seng China Enterprises Index (HSCEI).
Amid China’s economic slump, the HSCEI-listed Chinese stocks plummeted and principal losses for the ELS products this year have already reached 106.7 billion won for bank customers.
Concerning project financing, the exposure on the loans of the four financial groups is worth tens of trillions of won, posing a potential credit risk respectively amid a downturn in the housing market.
To make things worse, the four companies may suffer bigger losses this year as the majority of the three-year maturity ELS products linked to the HSCEI are set to mature in 2024.
For instance, the first half of the year alone will see around 10.2 trillion won of these products reaching maturity.
The government regards risks linked to project financing as a major economic headwind, and it plans to expand relevant liquidity supply programs.