By Kim Tong-hyung
Last year was quite dismal for the Shinhan Financial Group, which was rattled by a bitter internal management feud that resulted in full-blown upheaval in the executive suite.
In fact, so much ink and so many electrons were spent to cover the public relations (PR) mess that one could almost forget that Shinhan still led all banking groups in profit by a comfortable margin in 2010. Now regrouped and refocused, the reigning pound-for-pound king of the financial sector vows to show what it can do at full strength.
``Our rivals still rely heavily on their banking business in their portfolios, but we are the only banking group that has a healthy balance between banking and non-banking divisions,’’ said Shinhan Financial Chairman Han Dong-woo in a news conference in March, shortly after he replaced interim boss Ryoo Shee-yul at the management helm.
``Throughout the years, Shinhan has drawn its core strength from its organizational culture driven by pursuit of efficiency and fair competition. This culture has been embedded thoroughly into our corporate system, and last year’s business performance shows that this was unaffected by the uncertainties at the top-management level.’’
Shinhan expects to face intensified competition from its major rivals KB Financial, Woori Financial and Hana Financial and also the disruptive merger and acquisition (M&A) force that is the Korea Development Bank (KDB) as they aim to take advantage of the wave of consolidations sweeping the financial services industry.
Although the renewed competition among banking groups has been fueled mostly by zealousness for size in assets and market shares, Shinhan continues to show undisputed leadership in the most import category of all ― profit.
Shinhan posted 924.3 billion won (about $842 million) in net profit during the first quarter of the year, which represented a comfortable lead over KB’s 757.5 billion won during the same period. Woori and Hana managed just 540.7 billion won and 389.5 billion won in net profit respectively.
Shinhan posted a record 2.38 trillion won in net profit last year, which represented nearly an 83 percent annual increase, driven by robust growth in its credit card and insurance divisions that complement its bread-and-butter unit, Shinhan Bank.
Other financial groups failed to even approach the 2 trillion won threshold, with Woori being a distant second at 1.3 trillion won.
Even should the much-anticipated merger between KDB and Woori go through, the balance sheets of the two companies show that their combined profit will still lag behind Shinhan’s.
``Although the competition is close in the banking business, Shinhan’s strength in non-banking areas like insurance and credit cards seems to be unchallenged,’’ said Kim In, an analyst of Eugene Investment and Securities.
``A figure of around 600 billion won would have been enough to put Shinhan on course to post 2 trillion won in net profit for the entire year. But with its first-quarter numbers approaching 1 trillion won, 3 trillion won for the year doesn’t seem out of the question.’’
Although outsized growth appears to have come at the cost of credit quality at other banking groups, as they scramble to clear their stockpiles of bad debt from struggling households and companies, Shinhan’s foundation seems to stand on firmer ground than its rivals.
Shinhan’s above-average net-interest margins and bad debt rates show that it has been burned less from the exposure to the country’s toxic corporate restructuring and property markets.
Shinhan is the only financial firm that stands among the top-10 Korean companies by market capitalization, rubbing shoulders with the country’s export juggernauts in the technology and manufacturing industries.
While its rivals compete to flex their domestic muscles, Shinhan has its eyes set on expanding externally. Shinhan currently earns around 3 percent of its profit overseas, but the group vows to propel this proportion to double digits.
Spearheading Shinhan’s efforts to go global is Shinhan Bank, which is looking to expand its international network that currently consists of 53 business units in 14 countries. China, Japan, India and Vietnam have been identified as its core Asian markets, although the bank is involved in a variety of business operations elsewhere.
Other Asian nations, with cultural similarities to Korea and where a larger number of Korean companies are operating, are the obvious targets of expansion, according to Shinhan Bank President Seo Jin-won.