Regional financial groups see nonbanking biz overtake banking as key profit drivers

JB Financial Group headquarters in Jeonju, North Jeolla Province / Korea Times file

Regional financial groups are seeing their nonbanking subsidiaries outperforming their banking units, a major shift in their decades-long revenue structure, market watchers said Wednesday.

Their capital, car financing, savings banks and securities subsidiaries are reporting increases in profit, driven by successful diversification strategies moving away from leasing or installment financing into car rental services and investment banking.

Also at play is declining profitability of regional banks amid soaring delinquency rates, which have tripled to the average of their Seoul-based major peers. This led to greater share of nonbanking operations in the financial holding firms’ income.

According to financial market data, the combined net profit of the three major regional financial groups — BNK, iM and JB — reached 1.78 trillion won ($1.21 billion) in the first nine months of the year, up 17.1 percent from a year earlier.

JB Financial’s capital subsidiary specializing in rental car and used car financing posted a net income of over 211 billion won in the first nine months. This is more than the group’s banking subsidiaries, Jeonbuk Bank which posted 178.4 billion won in net profit over the same period.

Similarly, BNK Financial’s three nonbanking subsidiaries — capital, investment & securities and savings bank — posted a combined 166 billion won in the first nine months, up more than 33 percent from the previous year.

The group’s banking subsidiary's figure came in at around 670.4 billion won, down 0.8 percent from a year earlier.

The net income of iM Bank, formerly Daegu Bank and the banking subsidiary of iM Financial, came to 366.6 billion won in the first three quarters, up 7 percent from a year earlier.

The year-on-year increase of 7 percent, however, is overshadowed by its securities business which posted a profit of 65.4 billion won, a breakthrough from months of net losses. The group’s capital subsidiary also reported 47 billion won in net income, up 42.4 percent from a year earlier.

Whether the groups would be able to keep the robust performance remains to be seen.

Their primary client base is small- and medium-sized enterprises as well as the self-employed, groups of borrowers that are more vulnerable to economic slowdown in the non-Seoul regions.

Meanwhile, the country’s top four financial groups are also strengthening their nonbanking subsidiaries.

KB Financial, for example, its nonbanking businesses constituted nearly 40 percent of the group’s total net income.

Its securities and trust-related fee income grew rapidly, leading to over 2.95 trillion won in net fee income for the first three quarters, up 3.5 percent from the previous year.