Financial groups see earnings boost in H1 despite sluggish market

South Korea’s major financial groups posted record-breaking earnings during the first half of the year, notwithstanding external challenges that have weighed down the overall market, industry data showed Sunday.

Shinhan Financial Group and KB Financial Group, the nation’s top two banking groups in terms of assets, logged 1.91 trillion won ($1.6 billion) and 1.84 trillion won in net profit, respectively, according to their recent earnings announcements.

Runners-up Hana Financial Group and Woori Financial Group also exceeded the 1 trillion won mark, with 1.25 trillion won and 1.18 trillion net profit in the first half of the year, respectively.

Of the four, Shinhan Financial marked the largest on-year increase of 6.6 percent.

Woori Financial also said that it renewed its own earnings records. Woori Bank and its financial affiliates were realigned into a holding company system in January this year for the first time since the former entity was disbanded in 2014.

KB Financial and Hana Financial saw their half-year profit shrink 4.1 percent and 7.5 percent, respectively, from the same period last year, but both cited temporary factors for the fluctuation.

“Last year’s figures included profits from the sale of the Myeong-dong headquarters building, which came to around 83 billion won after taxes” said an official of KB Financial.

“Excluding that one-shot variable, (this year’s first-half profit) is more or less similar to last year.”

Hana Financial also explained that it had to disburse 126 billion won to cover special retirement costs in the first quarter this year, due to the wage peak system.

In the second quarter, both KB Financial and Hana Financial achieved double-digit on-year growth in profits -- 17.2 percent and 20.6 percent, respectively. 

The latest earnings results came amid worsening economic conditions, including the prolonged US-China trade tension and Japan’s export restrictions.

The key reason for such a performance was the net interest margin, which continued to account for a sizeable share in overall profits, data showed.

The top four banking groups logged a combined NIM of 14.27 trillion won from January to June. The banking industry’s high dependency on NIM was seen as being contradictory to their aim for portfolio diversification and nonbanking reinforcement.

But given the latest slowdown in NIM growth and the central bank’s monetary easing actions, financial groups here are likely to face slower growth in the second half of the year, observers noted.

Responding to the much-anticipated rate cut by the US Federal Reserve and the mounting external risks, the Bank of Korea cut the base rate earlier this month by 25 basis points to 1.5 percent. It also lowered the outlook for the country’s growth pace for this year to 2.2 percent, down 0.3 percentage point from the earlier forecast.

In light of the slow growth trend and interest margin challenges, banks are expected to reduce loans and focus more on risk management.

“We expect that the NIM level will fall by an additional 0.01-0.02 percentage point during the second half of the year,” KB Financial CFO Kim Ki-hwan said.

By Bae Hyun-jung (tellme@heraldcorp.com)