By Kang Seung-woo
Staff Reporter
South Korea's financial groups and banks are enjoying surprise earnings in the first quarter on the back of a fast economic rebound, nearly recovering to the pre-crisis level both in growth and profitability.
However, analysts are hesitant and say that it is too early to conclude that the banking sector is back on track as their profits were due to one-off factors and there is still the uncertainty that loans extended to troubled builders still run high risks of going sour.
KB Financial Group's total assets surged to 325.6 trillion won ($294.13 billion) in the first three months of 2010 to regain its position as the nation's largest group among the four major financial holding companies.
It was up 3 percent from the end of last year, when it recorded 316 trillion won. Woori Financial Group saw its assets rise by 2.7 percent to 325.4 trillion won in March and follows KB..
Shinhan Financial Group ranked third in total assets after reporting 311.7 trillion won and Hana Financial Group ranked last among the four, standing at 192 trillion won.
In terms of profits, Shinhan Financial Group startled the rest of the pack with its net income reaching 779 billion won, up 559.5 percent from 204.1 billion won a year ago.
Shinhan Bank, the flagship of the group, led the robust performance, with a net profit of 588.6 billion won, the highest since the second quarter of 2007. Its net interest margin (NIM), a barometer for profitability, improved to 3.48 percent during the period.
KB's net earnings jumped 140 percent to 572.68 billion won from 238.3 billion won over the first quarter of last year because of widening profit margins coupled with a fall in problem loans.
It also notched a 2.82 percent net interest margin (NIM), a 0.21 percentage point boost from the previous quarter. Kookmin Bank, its flagship unit, also surged 227 percent to report 520.3 billion won in net income.
Woori edged out KB by 300 million won to earn 573.0 billion won in the first quarter, up 253.7 percent from the same span last year. It was the highest since the third quarter of 2007. Its NIM posted 2.42 percent, a 0.11 percentage point hike from the Oct. to Nov. quarter last year. Its subsidiary, Woori Bank logged 459.8 billion won in the first three months, up 174.5 percent from a year earlier.
Hana recorded a quarterly 323.8 billion in earnings, a 67.8 percent increase and its bank rose 54.6 percent from the previous quarter to 306.1 billion won. The state-run Industrial Bank of Korea (IBK) said Friday its first-quarter earnings jumped almost eight-fold from a year earlier on improving lending margins. Net profit amounted to 376.5 billion won, up 686.6 percent from the previous year.
The first quarter outcome has shown signs of a business turnaround for banks. However, there are still lingering issues for them to tackle.
First of all, surprise earnings were largely due to factors such as the sale of Hynix Semiconductor shares. For example, Shinhan and Woori enjoyed windfall gains from the sale of their stakes in Hynix in mid-March.
In addition, chances are that banks will have to set aside more loss provisions for loans extended to small- and medium-sized shipping and construction companies, many of which are about to go bankrupt due to a shortage of cash.
Finally, mortgages are considered a big risk to the financial soundness of the banks as the local repayment capability of household debt has been weakening due to falling income. If the central bank raises key rates, it is likely that many over-leveraged borrowers will become unable to repay their debts.