Financial groups achieve record profits as household lending booms

Banking groups posted strong earnings through the third quarter by lending heavily to households despite the government's admonition against overdoing credit to these borrowers.

Automated teller machines of major banks in Seoul [YONHAP]

Banking groups posted strong earnings through the third quarter by lending heavily to households despite the government’s admonition against overdoing credit to these borrowers.

Shinhan Financial Group Tuesday reported 3.56 trillion won ($3 billion) in net profit in the first nine months of the year, a 20.7 percent increase on year. This figure, a record high accumulated figure, is already larger than the group's 2020 net profit of 3.41 trillion won.

In the third quarter, the group posted 1.12 trillion won in net profit, down 2.5 percent on-year. It said the decline was largely due to a one-off expense to settle disputes regarding investment products sold by Shinhan Financial Investment.

On Oct. 21, KB Financial Group said it posted 3.77 trillion won in net profit in the first three quarters. That figure beat the group's net profit for the whole of 2020, which was 3.46 trillion won.

In the third quarter alone, KB Financial Group logged 1.3 trillion won in net profit, up 11 percent on year.

While KB Financial Group and Shinhan Financial Group normally fight intensely to be No. 1 in terms of profit, KB Financial Group easily beat its rival in the third quarter and through the third quarter. In 2020, KB Financial Group beat Shinhan Financial Group for the first time in three years.

Hana Financial Group and Woori Financial Group also managed to earn more than they did during 2020 in just three quarters of this year.

Hana Financial Group logged 2.68 trillion won in net profit through September, up 27.4 percent on year. Woori Financial Group posted 2.2 trillion won over the same period, a 92.8 percent on-year jump.

The record earnings were driven by a rapid increase in lending to households by the banks within the groups.

Over the past year, when the coronavirus pandemic swept the country and the world's central banks eased monetary policies to revive the economy, households borrowed heavily to purchase real estate and invest in stocks.

Loans outstanding to households by KB Kookmin Bank at the end of September were 169.8 trillion won, up 4.9 percent compared to the end of last year. Loans outstanding to households by Shinhan Bank were 130.1 trillion won, up 3 percent from the end of last year.

Loans outstanding to households by Hana Bank and Woori Bank at the end of the third quarter increased by over 4 percent compared to the end of 2020.

Interest income increased steeply this year.

KB Financial Group earned 8.26 trillion won in interest income through September, up 15.6 percent on-year. Shinhan Financial Group pulled in 6.66 trillion won in interest income over the same period, up 10.2 percent on-year.

Earnings by financial groups are expected to grow further in the fourth quarter as the central bank raised rates in August. From the fourth quarter, interest income is expected to rise.

"We expect net interest margin of banks in the fourth quarter to rise," wrote Kang Seung-gun, an analyst from KB Securities, in a report Tuesday.

Analysts expect the largest two financial groups in the country to achieve 4 trillion won in net profit this year, for the first time ever.

"We expect KB Financial Group to log over 4.3 trillion won in net profit for 2021, which would be about 26 percent above last year's figures," said Park Hye-jin, an analyst from Daishin Securities. "As another base rate hike is expected in November and macroeconomic conditions remain favorable for banks, we expect the group to post strong earnings through the first half of next year."

BY KIM JEE-HEE [kim.jeehee@joongang.co.kr]