KB recaptures the first place in finance after 3 years… Shinhan struggles with provisions for private equity

Input 2021.02.05 18:41

KB Finance regained its position as Korea’s’Leading Bank’, which had been lost to Shinhan Financial Group, in three years. While Shinhan Financial was held back by the private equity crisis last year, KB Financial, which reduced uncertainty and enjoyed aggressive mergers and acquisitions, achieved a record-breaking profit of 3,4552 billion won, an increase of 8.2% from last year.

The financial industry believes that Shinhan Financial Group, which failed to secure its position as a leading bank due to losses due to the suspension of large-scale private equity repurchases, will try to recapture the No. 1 position by reducing financial volatility caused by investment product issues this year.

On the 5th, Shinhan Financial Group recorded a net profit of 3,4146 billion won last year, an increase of only 0.3% from the previous year. In terms of the performance itself, Shinhan Financial also recorded the largest profit in history, but the growth was lagging behind KB Financial.

In terms of the net profits the two companies earned last year, KB Financial exceeds Shinhan Financial Group by KRW 40.6 billion. In three years since 2017, Shinhan’s No. 1 position has been overturned. The two companies representing Korea have been competing fiercely every year since 2008, when the financial holding competition system began.

Shinhan reigned at No. 1 for 9 consecutive years from 2008 to 2016, and took the lead in KB, which gradually increased non-banking affiliates in 2017. Since then, through aggressive management, it recaptured the top spot in 2018 and maintained its position in 2019, but the ranking has changed again this year.

The benefits of the two companies were divided in the costs associated with the private equity crisis. According to the initial consensus, Shinhan seemed to be slightly ahead of KB. However, the estimate was wrong as Shinhan Financial reflected a total of 472.5 billion won as a loss to cope with the losses caused by the Lime Fund.

Shinhan was found to have included a total of 2675 billion won in losses by reflecting external due diligence evaluation in the last 4 quarters only. Shinhan Bank alone reflected 69.2 billion won in Lime CI Fund, and Shinhan Financial Investment 1153 billion won in Lime TSR-related losses. The difference widened further by reflecting the valuation loss of 66.9 billion won in overseas investment assets due to the novel coronavirus infection (Corona 19).

Shinhan’s loan loss provisions increased to 1.3906 billion won last year, up 46.3% from 9508 billion won last year.

On the other hand, KB, which was not involved in the private equity crisis, only set up 32 billion won as a provision for the KB Securities Trade Finance Fund. Including this, KB also saw a 55.7% increase in provision for bad debts, but the total size was 1.43 trillion won, less than Shinhan. Considering that the difference in net profit between the two companies is about KRW40 billion, the gap in provisions has divided the rankings.

Hana Financial, the third largest in the industry, also recorded a record-high performance with net income of 2.637.2 billion won last year. This is a 10.3% increase from the previous year. In terms of net profit alone in the fourth quarter of last year, it rose 52% to 5328 billion won from the same period last year (350.4 billion won).

Hana Financial Group’s advancement in the non-banking sector, which has been elaborated so far, led to its peak performance. Hana Financial Investment has greatly benefited from the so-called’Donghak Ant Movement’. As the trading volume of the stock market increased significantly, it achieved a net profit of 4109 billion won, a 46.6% increase from a year ago. Hana Capital reported a net profit of 177.2 billion won, an increase of 64.5% year-on-year due to the increase in high-quality retail assets. In addition, affiliates such as Hana Asset Trust and Hana Life Insurance also showed double-digit growth, and the proportion of non-banking profits rose to 34.3%.

Hana Financial Group has accumulated 8473 billion won in provision for bad debt.

However, Woori Financial Group is the only one of the four major financial holdings whose earnings have declined from the previous year. Woori Financial Group recorded a net profit of 1.3 trillion won last year, down 30.2% from the previous year. This is a more painful result, as other financial holdings have taken a step back alone while recording the highest performance ever recorded.

Net operating income, which is a key indicator of earnings such as interest income and non-interest income, remained at the level of the previous year at about 6.8 trillion won. However, the fact that other financial holding companies did not have securities companies that made large-scale profits had a devastating negative impact on earnings. As Lime-related losses and derivative-linked funds (DLF) compensation were carried out, provision for bad debts was also required to accumulate 784 billion won, which is much higher than the performance. This is a 109.6% increase from 2019.

While Woori Finance was sluggish, three of the four major financial holding companies recorded record-high performance, while the combined net profit of the four holdings decreased from last year to KRW 10,814.3 billion. This is 1.9% less than last year, which exceeded 11 trillion won (11,278 trillion won) for the first time ever.

Even though the performance was better than expected, the share of return to shareholders was reduced. This is because the financial authorities recommended lowering the dividend payout ratio to the 20% level in response to the economic downturn caused by Corona 19.

Among the four major financial holdings, Shinhan and Woori Finance did not announce their dividend payout ratio at this performance announcement. On the other hand, Hana Financial Group decided to pay a dividend per share of 1350 won (dividend payout ratio of 20%). The total dividend including the interim dividend is 1850 won, 16% lower than the previous year. KB Financial Group also decided to reduce its dividend per share by 20% from 2019 (2210 won) to 1770 won.