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Financial groups’ profit growth slow but steady

Despite some record net incomes, their net margins remain low
Feb 10,2020
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Slow and steady seemed to be the theme for financial groups in 2019. Profits are rising, but not very rapidly, as slim margins continue to create challenges for these companies.

Shinhan Financial Group reported net profit of 3.4 trillion won ($2.9 billion) last year, a 7.8 percent on-year increase from 2018’s 3.1 trillion won. It is the largest financial group by this measure.

“Despite decrease of the NIM at the banking unit, diversification of business portfolio that doesn’t rely on the interest rate played a central role in enhancing the group’s earnings,” the company said in a release, using the acronym for Net Interest Margin (NIM).

The banking group has diversified its income streams with a portfolio that includes credit card and insurance businesses. Last year, Shinhan Financial Group acquired Orange Life Insurance, formerly known as ING Life, and Asia Trust, a firm specializing in real estate investment.

Its bank subsidiary reported 2.3 trillion won in net profit in 2019, which is a 2.2 percent rise compared to 2018. With the result, it is now No. 2 in terms of net profit. KB Bank is now in the top spot.

KB Financial Group reported 3.6 trillion won in net profit last year, up 8.2 percent, making it the No. 2 financial holding company.

Its bank unit reported 2.4 trillion won in net profit, up 8 percent. KB Bank said its NIM was 1.67 percent, a 4-basis-point drop from 2018.

The bank has been concerned that the falling margins would lead to an erosion of profitability and has responded by investing in its non-banking businesses, such as KB Securities, where it started a short-term financing business, and KB Kookmin Card, where it focused on attracting premium clients.

KB Financial Group is bidding for Prudential Life Insurance in Korea in coming months.

“The bidding price would be critical, but if KB succeeds in acquiring the local unit of Prudential Life, its non-bank portfolio would be complete and become a momentum for the financier’s better earnings,” said Choi Jung-woo, an analyst at Hana Financial Investment.

Woori Financial Group and Hana Financial Group vied for third and fourth.

Hana Financial Group came in third, posting 2.4 trillion won in net profit, up 7.8 percent and an all-time high. Its banking unit recorded 2.1 trillion won in net profit last year, a 3.4 percent increase.

The financier expanded its global business in 2019 through Hana Bank, which acquired 15 percent of the state-run Commercial Bank for Investment and Development of Vietnam.

Woori Financial Group posted 1.9 trillion in net profit in 2019. It was 2.04 trillion won, an all-time high, but that figure was lowered on a charge taken as it shifted to a holding company structure last year.

“It is hard to see that banks will see significant growth in 2020 due to slow growth, a low key rate and possible additional rate cuts,” said Sung Yong-hoon, an analyst at Hanwha Securities. “But, the financial holding companies will be able to see gradual growth.”

Of the banking groups reporting so far, Shinhan was No. 1 in terms of assets, at 552 trillion won. Hana was No. 2, at 540 trillion won, KB was No. 3, at 518 trillion won, and Woori was No. 4, at 362 trillion won. Nonghyup Financial Group has yet to report.

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]