Top 4 financial groups display strong earnings in 2023 despite gov't pressure

Korea’s top four financial groups achieved at least 2 trillion won ($1.5 billion) each in net profit last year, market watchers said Thursday.

The strong performance surpassed market expectations, despite the Yoon Suk Yeol administration's push to have the leading banks provide a combined 2 trillion won in financial packages for low-income, self-employed borrowers. Also weighing heavily was the need to set aside increased loss reserves to mitigate project financing risks.

The only remaining risk factor is skyrocketing losses from troubled equity-linked securities (ELS) tied to the performance of Hong Kong's Hang Seng China Enterprises Index (HSCEI). Many banks — the most lucrative subsidiary of the groups — sold a combined 16 trillion won worth of the high-risk derivative products. Most of the three-year products will reach maturity in the months to come.

According to market data, the combined net profit of the four major banks – KB, Hana, Shinhan and Woori – came close to 13 trillion won last year.

KB and Hana banks registered an all-time high net profit of over 3 trillion won. Their year-on-year growth of 9 percent and 12.3 percent, respectively, translated into 266 billion won and 380.8 billion won increases in net profits.

Shinhan Bank's net profit reached 3.67 trillion won, up 0.7 percent from a year earlier.

Woori Bank's net profit fell 13 percent year-on-year to 2.5 trillion won. The drop reflects hefty government-mandated spending on financial aid packages for low-income earners and small businesses. Were it not for the unexpected one-off expenditure, the net profit would have displayed a year-on-year increase.

KB Financial Group’s net profit rose 11.5 percent from a year earlier to 4.63 trillion won. Shinhan Financial Group’s net profit fell 6.4 percent from a year earlier to 4.36 trillion won. Hana Financial Group registered a net profit of 3.45 trillion won, down 3.3 percent from the year prior. Woori Financial Group’s net profit stood at 2.51 trillion won, down 19.9 percent from 2022.

Underpinning the strong performance was the net interest margin (NIM), as measured by interest earnings on loans relative to the interest paid on deposits. NIM is a strong indicator of a bank's profitability and growth.

KB, for example, registered an NIM of 1.83 percent, the highest in three years. Hana’s earnings were buttressed by corporate loans in addition to a 116.1 percent year-on-year growth in non-interest income.

“Commercial lenders came under heavy pressure to promote and partake in the so-called ‘mutual growth,’ initiative, but the combined 2 trillion won in aid apparently had no significant impact on the bottom line,” an industry official said.