Non-banking growth solidifies Shinhan's leadership

By Lee Kyung-min

Shinhan Financial Group has solidified its leadership on the back of robust growth in its non-banking sector in the first quarter of 2019.

Other financial groups, including KB Financial, are likely to accelerate efforts to diversify their business portfolios by more aggressively taking over insurers, brokerages and card companies.

Shinhan, the nation's largest financial group by total assets and profit, posted a net profit of 918.4 billion won ($792 million) in the first three months of 2019, up 7.1 percent from a year ago.

Of the total, about 40 percent, or 373.1 billion was derived from its non-banking subsidiaries including cards, investment, life insurance and asset management.

This means Shinhan, by a substantial margin, has outperformed its competitor KB, whose non-banking income stood at 272.9 billion won, accounting for only 32 percent of the group's total net income of 845.7 billion won in the same period.

Shinhan's solid earnings followed a successful acquisition of ING Life Korea, now Orange Life Insurance, from MBK Partners in 2018.

The insurer, which posted a net profit of 80.4 billion won for the first quarter of 2019, will contribute to the group's robust financials.

This will be boosted further by the acquisition of Asia Trust, Korea's fifth-largest firm specializing in the high-yield real estate investment trust (REIT) business. Asia Trust in 2017 posted an annual net profit of 28.2 billion won and signed new contracts worth 90 billion won.

The net income was also helped by an operating profit of 172.1 billion won from its Global and Investment Banking (GIB) in the first quarter of 2019, up 82 percent from the previous year.

The handsome performance in the sector came thanks to One Shinhan, a group-wide initiative defined by closer integration among group subsidiaries that handle banking, card, car financing, life-insurance and investment businesses.

In the same period, Woori Financial became the third-largest player overpowering Hana Financial.

However, the narrow win indicates tall tasks ahead given 95 percent of the group's income ― 539.4 billion won ― came from the bank which posted a net profit of 568.6 billion won.

Woori's efforts to strengthen the non-banking sector have borne fruit after it inked a package deal to acquire two mid-tier non-banking firms ― Tongyang Asset Management and ABL Global Asset Management, previously owned by China's Anbang Group, April 8.

Earlier on April 4, Woori also signed a memorandum of understanding (MOU) with Kukje Asset Trust to acquire a controlling stake.

The acquisitions are part of a continued strategy to diversify the group's business portfolio including raising capital held by non-bank subsidiaries.

Hana Financial Group has been aiming to take over Lotte Card, a move sought by a number of private equity funds including MBK Partners and Hahn & Company as well as Woori Financial.

Financial groups are also expected to step up efforts to reduce their reliance on interest income.

In a report in March, global investment banks suggested that Korean banks make greater efforts to boost non-interest income.

Korean banks' non-interest income accounts for around 25 percent, only around half that of global banks. The comparable figure for Japan is 54.2 percent, followed by the U.S. (53.9 percent) and the U.K. (50.9 percent).