Korean lenders under ever-demanding state lose money and investors

[Graphics by Song Ji-yoon]

Ever-stretching government meddling in the private sector under the pretext of pain-sharing amidst unprecedented epidemic crisis is scaring off foreign investors, especially in the banking sector responsible for financing various state-led relief programs.

Foreign holdings in banking majors are traditionally high as their ratings are on par with sovereign credit.

But the ownership has been weakening upon yet-another rare idea from the liberal ruling front – mandating profit-sharing by the big with smaller companies – to serve its inclusive political agenda ahead of the critical Seoul and Busan mayor by-elections in April and presidential election next year.

Foreign ownership exceeds 50 percent in all major financial holding companies except for Woori Financial Group. Hana Financial Group has the highest foreign ownership at 67.2 percent, followed by KB Financial Group with 66.5 percent and Shinhan Financial Group 58.4 percent.

Even as Kospi has been reaching new heights by gaining more than 10 percent so far this year, bank stocks have been tanking.

Shares of KB Financial and Woori Financial have been skidding while Shinhan Financial edged up a mere 0.3 percent.

Foreigners¡¯ buying in financial stocks lost steam on Jan. 20 when the profit-sharing scheme was floated from the ruling front. Offshore investors bought 65.1 billion won ($58.5 million) worth local financial shares from Jan.20-26, compared with their average purchase of 562 billion won Jan.1-19.

Financial holding firms are said to be barraged with inquires about the profit-sharing scheme after the political circle included financial institutions for targets subject to share some of their profits.

Financial institutions have been frequently mobilized to back government¡¯s stimuli and relief programs from Covid-19 debt write-offs to financing for ambitious New Deal and Green projects.

Financial companies have contributed around 20 trillion won since 2009 to state-led projects.

The nation¡¯s five major commercial banks – KB Kookmin, Shinhan, Woori, Hana and NH Nonghyup - gave out 498.5 billion won to the government to from 2012 when the then Lee Myung-bak administration had called for donation to fund a youth employment support project. Banks are complaining that they have been pressured to pay tens of billions of won to the government without knowing where the money really goes.

In addition, the five lenders pitched in 19.25 trillion won to a state-led program to lend up to 30 million won to people with annual income of less than 35 million won and credit rating of lower than level 6 at an annual interest rate below 10.5 percent. But they are nursing huge losses from high default rate averaging 2.23 percent as of 2019, about twice higher than delinquency rate of ordinary loans.

The lenders said they can no longer afford the contribution at a time when the ultra-low interest rate and Covid-19 crisis have devastated their bottom line. Average net income of the five major banks has been in a decline over the past two years, from 8.48 trillion won in 2018 to 8.28 trillion won in 2019 and 7.65 trillion won in 2020.

[¨Ï Maeil Business Newspaper & mk.co.kr, All rights reserved]