S. Korea's Big Four Financial Groups Eye $4.2 Billion Q3 Profit

The headquarters of South Korea's four major financial groups — KB Financial, Shinhan Financial, Hana Financial and Woori Financial South Korea's four major financial holding companies are expected to post combined third-quarter net profit of approximately 5.6 trillion won, extending their year-on-year earnings growth. According to estimates compiled by financial data provider FnGuide as of Oct. 21, combined net profit attributable to controlling shareholders at KB Financial Group, Shinhan Financial Group, Hana Financial Group and Woori Financial Group is projected to reach 5.63 trillion won, or approximately $4.24 billion, up 2.6% from a year earlier. Their cumulative net profit for the first nine months is expected to hit a record 16.96 trillion won. KB Financial Group is projected to remain the top earner, with third-quarter net profit rising 9.3% year on year to 1.84 trillion won. Shinhan Financial Group is expected to report a 12.6% increase to 1.6 trillion won, while Hana Financial Group is forecast to post a 7.0% gain to 1.21 trillion won. Woori Financial Group, by contrast, is expected to see net profit decline 22.1% to 968.4 billion won, largely reflecting a high comparison base created by bargain purchase gains recognized during its acquisitions of Tongyang Life Insurance and ABL Life Insurance last year. Loan growth and a favorable foreign exchange environment are expected to be the main earnings drivers. Despite regulatory restrictions on household lending, the banks maintained interest income by expanding their corporate loan portfolios. Combined won-denominated loans at the four major banks increased by more than 21 trillion won between the end of June and the end of September. Meanwhile, the won strengthened against the U.S. dollar, with the exchange rate falling from 1,341.50 won at the end of June to 1,308.40 won at the end of September. The resulting foreign currency translation gains helped offset weakness in other non-interest income. However, net interest margins (NIM), a key measure of lending profitability, are expected to decline further. Rising funding costs and shrinking low-cost deposits are projected to have pushed NIM at major banks down by 0.02 to 0.03 percentage points from the previous quarter. Securities subsidiaries, which were major earnings drivers in the first half, are also expected to deliver weaker quarter-on-quarter results as declining stock trading volumes and deteriorating equity market conditions weigh on brokerage commission income. The stronger won is also expected to improve capital adequacy. As the won's appreciation reduces the local-currency value of foreign currency-denominated risk-weighted assets (RWA), Common Equity Tier 1 (CET1) capital ratios are projected to rise from the previous quarter. Market analysts estimate that exchange rate movements alone could lift individual banks' capital ratios by 0.18 to 0.46 percentage points, potentially creating additional room for shareholder returns through dividends, share buybacks and cancellations of repurchased shares. Investor attention is now shifting to the shareholder return plans each financial holding company will announce. Shareholder return ratios across the four groups are projected to range from 44.9% to 55.6% this year, significantly higher than a year earlier. Shinhan Financial Group and Hana Financial Group are also expected to announce share buyback and cancellation programs worth 250 billion won each in the fourth quarter. However, how the groups balance shareholder distributions with the need to maintain financial soundness and preserve capital for future growth remains a key consideration. The four financial groups are scheduled to release their final third-quarter earnings, beginning with Hana Financial Group and Woori Financial Group on Oct. 23, followed by Shinhan Financial Group on Oct. 27 and KB Financial Group on Oct. 29. Although year-end loan-loss provisions and voluntary retirement expenses remain potential headwinds, the groups could surpass 20 trillion won in combined annual net profit for the first time if current trends continue.