South Korea’s four major financial holding groups posted combined net profit of more than 11 trillion won in the first half of this year. Net profit rose about 10 percent from a year earlier as fee income from capital-market businesses such as securities, wealth management and investment banking added to steady interest income.

As non-bank units contributed a larger share of earnings, the competitive focus among financial groups appears to be shifting toward capital markets.

Combined net profit of 11.34 trillion won... up 9.8 percent from a year earlier

The combined first-half net profit of the four groups — KB, Shinhan, Hana and Woori Financial Group — was tallied at 11.34 trillion won.

KB Financial Group posted 3.88 trillion won, Shinhan Financial Group 3.44 trillion won, Hana Financial Group 2.40 trillion won and Woori Financial Group 1.61 trillion won. That was up 1.01 trillion won, or 9.8 percent, from a combined 10.33 trillion won a year earlier.

KB Financial Group had the largest net profit. Its net profit rose 13.1 percent from a year earlier to 3.88 trillion won, leading Shinhan Financial Group by 441.9 billion won. The result reflected a sharp rise in fee profit linked to capital markets such as securities and asset management, on top of stable interest income from its bank.

Shinhan Financial Group posted 3.44 trillion won, up 13.3 percent. Its net profit growth rate was the highest among the four groups, but it ranked second by absolute size behind KB Financial Group. Interest income and non-interest income both grew, and results improved as credit loss costs stabilised, centered on its securities unit.

Hana Financial Group stayed third with 2.40 trillion won, up 4.4 percent. It defended results as fee profit rose 37.7 percent despite one-off costs including a 52.4 billion won decline in insurance profit, 74.9 billion won in provisions related to corporate rehabilitation and 109.8 billion won in foreign exchange translation losses.

Woori Financial Group posted 1.61 trillion won, up 3.7 percent. The increase was relatively small, but the contribution from non-bank profit expanded on the consolidation of Tongyang Life Insurance and growth in capital-market businesses.

Shinhan leads bank net profit... only Woori Bank declines

Unlike the holding-company net profit ranking, Shinhan Bank recorded the largest net profit among banks.

Shinhan Bank’s first-half net profit rose 8.5 percent from a year earlier to 2.46 trillion won. KB Kookmin Bank followed with 2.23 trillion won, up 1.7 percent, and Hana Bank posted 2.12 trillion won, up 1.7 percent.

Shinhan Bank lifted interest income as net interest margin improved and accumulated loan-asset growth built up, while selling, general and administrative expenses and credit loss costs were managed in a stable manner.

KB Kookmin Bank managed interest income steadily and increased wealth management fee profit, but its net profit growth rate was lower than Shinhan Bank’s. As of end-June, won-denominated loans stood at 385 trillion won, up 2 percent from end-December, with corporate loans up 3.4 percent and household loans up 0.5 percent.

Hana Bank increased net profit on growth in wealth management, retirement pensions, trusts and foreign exchange, despite provisions related to corporate rehabilitation and foreign exchange losses due to a rise in the exchange rate. Bank fee profit was 614.3 billion won, up 22.4 percent from a year earlier.

Woori Bank was the only one among the four major banks to post a decline in net profit. First-half net profit fell 11.9 percent from a year earlier to 1.37 trillion won.

Woori Bank’s interest income rose 6.9 percent to 4.12 trillion won, but non-interest income fell 40.5 percent to 393.0 billion won. Impairment losses on credit losses also rose 23.6 percent to 612.0 billion won, weighing on bank results. Its second-quarter net profit, however, was 842.0 billion won, up 58.6 percent from the previous quarter.

Securities units separated non-bank competition

The clearest feature of the four groups’ results this year was growth in capital-market businesses. In particular, KB Financial Group and Shinhan Financial Group reduced reliance on banks as net profit at their securities affiliates more than doubled.

The contribution of non-bank net profit to KB Financial Group was 44 percent, the highest among the four. KB Securities alone contributed 21 percent of group net profit.

KB Securities posted first-half net profit of 796.3 billion won, up 135 percent from a year earlier. As profit expanded in key businesses including wealth management and sales and trading, it played a decisive role in KB Financial Group taking the top spot in holding-company net profit despite weaker bank net profit.

Shinhan Financial Group’s share of non-bank profit and loss was 35 percent, up 5.3 percentage points from a year earlier. Net profit from capital-market businesses including securities and asset management was 652.7 billion won, up 126.5 percent.

Net profit at Shinhan Investment Corp rose 123.1 percent to 577.7 billion won, and Shinhan Asset Management rose 135.1 percent to 53.6 billion won. Shinhan Life’s net profit, however, fell 15.6 percent due to a decline in insurance profit.

Hana Financial Group saw the highest growth rate at Hana Securities. Hana Securities’ net profit surged 155.7 percent from a year earlier to 273.1 billion won. Hana Card and Hana Capital recorded net profit of 125.9 billion won and 104.5 billion won, respectively, and Hana Life posted 14.6 billion won.

Woori Financial Group’s non-bank profit contribution rose 15.4 percentage points to 22.3 percent this year from 6.9 percent in the first half of last year. The consolidation of Tongyang Life Insurance and improved results at its card, capital and securities units offset a decline in bank net profit.

A simple comparison of securities firms’ net profit shows KB Securities with the largest at 796.3 billion won, followed by Shinhan Investment Corp at 577.7 billion won, Hana Securities at 273.1 billion won and Woori Investment Securities at 24.7 billion won. As a result, the gap in first-half holding-company results widened more in non-bank profit generation, such as securities and wealth management, than in banking.

Shareholder returns also differ by scale and strategy

Earnings competition led to larger shareholder returns. All four groups increased share buybacks and cancellations and cash dividends while keeping their common equity Tier 1 (CET1) ratios above 13 percent.

As of end-June, KB Financial Group had the highest CET1 ratio at 13.74 percent, followed by Woori Financial Group at 13.71 percent, Shinhan Financial Group at 13.43 percent and Hana Financial Group at 13.21 percent.

KB Financial Group said it expects total shareholder returns this year to reach 3.7 trillion won. It will additionally buy back and cancel 700.0 billion won worth of shares in the second half and pay a quarterly cash dividend of 1,155 won per share. It plans to use remaining excess capital for additional returns after considering annual profit, price-to-book ratio (PBR) and dividend yield.

Shinhan Financial Group plans to return a total of 2.8 trillion won plus alpha, including 1.4 trillion won in annual cash dividends and at least 1.4 trillion won in share buybacks and cancellations. The second-quarter dividend per share is 740 won, and it will additionally buy back and cancel 700.0 billion won worth of shares.

Hana Financial Group set a shareholder return ratio target of at least 50 percent and will introduce a shareholder return framework linking ROE and the growth rate of risk-weighted assets. It plans to increase total annual dividends by at least 10 percent each year until the dividend payout ratio reaches 40 percent. In the third quarter, it will additionally buy back and cancel 250.0 billion won worth of shares and pay a quarterly dividend of 1,155 won per share.

Woori Financial Group, after cancelling 200.0 billion won worth of shares in June, will additionally buy back and cancel 150.0 billion won in the second half. Annual share buybacks and cancellations will total 350.0 billion won, up 133.3 percent from a year earlier. It raised the quarterly dividend by 10 percent to 220 won per share and plans to raise the shareholder return ratio band if the year-end CET1 ratio exceeds 13 percent.

Among the four, Hana Financial Group presented the most aggressive mid- to long-term shareholder return blueprint, setting a return ratio of at least 50 percent and a principle of expanding annual dividend amounts by at least 10 percent. Still, KB Financial Group will have the largest actual return size this year after signaling 3.7 trillion won.

Hana Financial Group CFO Jong-moo Park (박종무) said on a conference call, "We introduced a framework in which the shareholder return ratio expands as ROE improves so that gains from improved profitability lead to expanded shareholder returns." He added, "We will increase total cash dividends by at least 10 percent annually until the dividend payout ratio reaches 40 percent and will pursue share buybacks and cancellations in parallel to leap forward as a leading dividend stock in South Korea."

KB Financial Group CFO Sang-rok Na (나상록) said on a conference call, "To carry out the group’s shareholder return policy without wavering, we will maintain an appropriate level of asset growth and balance, and continuously raise capital efficiency and profitability through RWA-centered asset rebalancing."