COVID-19 irony: Banking groups set to break records in pandemic

While the global economy seems to be largely struggling under coronavirus woes, South Korea’s major banking groups are projected to see record-high earnings for this year, analysts said Sunday.

“There has been an increase in core interest revenues due to a growth in won-denominated loans and a narrow on-quarter decline of the banking groups’ net interest margins by 0.01 percentage point,” a recent note released by local brokerage BNK Securities said.

“Their brokerage units have contributed to the figures and the accumulated net profit for the fiscal 2020 is projected to reach a record-high of 3.5 trillion won ($3 billion), as the momentum is likely to continue onto the fourth-quarter,” it added.

The five major banking groups here –- KB, Shinhan, Hana, Woori and NongHyup –- surprised industry onlookers with robust earnings for the July-September period.

KB Financial Group maintained its No.1 position as the highest quarterly net profit earner among its peers by posting 1.16 trillion won and gaining 24.1 percent on-year. It gained 18.8 percent from the previous quarter.

Shinhan Financial Group –- which relinquished the quarterly net profit crown to KB last quarter –- saw its third quarter net profit increase 16.6 percent on-year and 31.1 percent on-quarter to 1.14 trillion won.

This marked the first time the duo saw its quarterly net profit surpass the 1 trillion won-mark.

Hana Financial Group’s third quarter net profit declined 9.1 percent on-year, but still gained 10.3 percent on-quarter to 760.1 billion won. Woori Financial Group’s net profit also shed some 1.1 percent on-year, but jumped 238 percent from the previous quarter to 479.8 billion won.

NongHyup Financial Group’s third quarter net profit increased 38.8 percent on-year and decline 3.7 percent on-quarter to 550.5 billion won.

Despite the celebratory mood, BNK’s note also indicates the financial “irony” prompted by COVID-19 pandemic here -– an increased demand for corporate and household loans from coronavirus woes coupled with a narrow decline in net interest margins have led to a robust interest revenue for banking groups.

All five flagship banking units under the major groups saw their accumulated won-denominated loans extended to customers by the third quarter this year increase noticeably. NH NongHyup Bank and KB Kookmin’s outstanding amount of such loans gained 9.9 percent and 8.7 percent to 232 trillion won and 292 trillion won on-year so far. The rest gained an average 7 percent as well, in the same period.

The banking groups’ accumulated revenue from brokerage commission also gained some average 50 percent on-year. KB Securities, KB’s brokerage unit, raked 680.1 billion won from commission in the January-September period, which increased by a whopping 60 percent on-year.

And while the banking giants may wish to maintain the momentum into next year, officials and onlookers alike have hinted concerns of facing increased stress from loan defaults.

Since earlier this year, major banks have allowed small- and medium-sized business owners and self-employed affected by the coronavirus to defer their loans or borrow under less strict conditions on government suggestion.

“We are strengthening the monitoring of our coronavirus loans as we cannot completely rule out the possibility of a spike in loan-loss provisions following the wrap-up of our COVID-19 financial support programs,” KB Financial Group’s Chief Financial Officer Kim Ki-hwan recently said Oct. 22, in a statement.

By Jung Min-kyung (mkjung@heraldcorp.com)