Shinhan defeats KB by whisker in 2019

Kookmin retakes leading status in banking business

By Park Jae-hyuk

Shinhan Financial Group maintained its lead in earnings last year, narrowly beating competitor KB Financial Group, their regulatory filings showed Friday.

Analysts expect the two banking groups will continue their fierce competition this year for the “leading financial group” title.

In 2019, Shinhan posted a record-high 3.4 trillion won ($2.8 billion) net profit, up 7.8 percent from a year before. This was 91.7 billion won higher than KB's 3.31 trillion won.

Although KB retook leading status in the banking sector as KB Kookmin Bank posted a 2.4 trillion won net profit ― while Shinhan Bank earned 2.3 trillion won ― Shinhan remained in top spot because of profits from its non-banking units.

Shinhan Card, which posted 508.8 billion won in net income, and Orange Life Insurance, which had a 271.5 billion won net profit, helped Shinhan outperform KB in the non-banking sector.

KB Kookmin Card and KB Securities, KB's two biggest non-banking units, posted net incomes of 316.5 billion won and 257.9 billion won, respectively.

“We showed differentiated performances in the global and investment banking markets,” a Shinhan Financial Group official said. “The most distinctive feature in our yearly result was stable growth in ordinary profits through diversification of our income sources.”

Shinhan Financial Group Chairman Cho Yong-byoung, left, and KB Financial Group Chairman Yoon Jong-kyoo. / Korea Times file

Analysts, however, expect that KB's possible acquisition of the Prudential Life Insurance Company of Korea might make it difficult for Shinhan to maintain its lead.

“KB showed another possibility of inorganic growth as it joined bidding for the Prudential takeover,” Meritz Securities analyst Eun Kyung-wan said. “Based on its stable and solid profits, it is the only company in the sector that can tell a meaningful story.”

Eun said the gap between Shinhan and KB will narrow this year, as they are expected to post 3.4 trillion won and 3.33 trillion won in net profit.

Some analysts said Shinhan might hand over its leading status to KB this year, because of Shinhan Investment's alleged involvement in the “Lime Asset Management fiasco.”

Because the securities firm was a prime brokerage service provider that extended loans to Lime, the Financial Supervisory Service suspects that Shinhan Investment sold the fund to investors, despite being aware that Lime's fund options involved a U.S. hedge fund that engaged in fraud.

“The Lime fiasco will be remembered as the biggest crisis that Shinhan Financial Group has never experienced before,” Kiwoom Securities analyst Seo Young-soo said.

“Shinhan may suffer a certain amount of losses as its exposure to the hedge fund was relatively large. Considering the significance of this issue, it should not rule out the possibility of facing sanctions from the regulators.”

His estimation of the 2020 net incomes of Shinhan and KB were 2.54 trillion won and 2.61 trillion won, respectively.

Meanwhile, Hana Financial Group maintained its status as the third-largest player, surpassing Woori Financial Group.

Hana and Woori, both involved in the derivative-linked fund fiasco, posted 2.4 trillion won and 1.9 trillion won in net incomes, respectively.