Top financial firms log Q1 net growth; increase loan loss reserves

All four financial firms bolstered their reserves following pressure from President Yoon Suk Yeol to prepare for a future financial market slowdown

From left: The headquarters of KB, Shinhan, Hana and Woori, all located in Seoul (Photos provided by firms)

All four major financial holding companies in Korea have increased their loan loss reserves during the first quarter of this year.

Despite this, KB Financial Group, Woori Financial Group, Hana Financial Group and Shinhan Financial Group have managed to report an improvement in net profit during this period.

KB's loan loss reserves in the January-March period were 668.2 billion won, surging dramatically from 145.8 billion won during the same period last year.

Despite the increase in loan loss reserves, which are recorded as losses in the books, KB still managed to achieve a 2.5 percent on-year increase in net profit to reach 1.49 trillion won in the first quarter.

KB's net profit was the highest among the top four financial firms.

Hana’s loan loss reserves in the first quarter of this year were 343.2 billion won, surging 108.5 percent on-year.

Its net profit for the first quarter also increased by 22.1 percent compared to the same period last year, to 1.10 trillion won. This was partially due to non-interest income reaching 778.8 billion won, the highest level in the past five years.

Woori’s loan loss reserves for the first quarter also surged 57.4 percent on-year to 261.4 billion won. Despite the significant increase in reserves, Woori recorded a net profit of 911.3 billion won in the first quarter, the highest ever for the first quarter, thanks to strong interest income.

Shinhan’s net profit recorded 1.388 trillion won in the first quarter of this year, seeing a slight increase from last year's 1.384 trillion won.

Shinhan's loan loss reserves in the first quarter of this year were 185 billion won, which more than doubled from 74.5 billion won during the same period last year.

Despite setting aside additional reserves and a decrease in interest income, Shinhan explained that it could still see profits due to an increase in non-interest income and expanded contributions from its global sector.

The group's non-interest income during the first quarter recorded 1.32 trillion won, while its net profit from the global sector reached 158.3 billion won.

All four financial firms’ move to increase their reserves came after President Yoon Suk Yeol in February criticized local financial firms for enjoying hefty bonuses with profits earned mostly from high interest.

Yoon also said that "it is deemed appropriate (for banks) to use profits to build a solid reserve in preparation for a future financial market slowdown."

This is why industry insiders see that financial holding companies may have bolstered their reserves in the first quarter with some intention to adjust their net profit and avoid criticism for profiting from high interest rates.

The four top financial firms recorded the highest-ever net profit of 15.85 trillion won last year, with around 37.96 trillion won of profit from interest income.

Last month, the Financial Services Commission also announced plans to require local banks to set aside a certain percentage of liquidity assets as countercyclical capital buffers during either the second or third quarter of this year.

Furthermore, the Korean government's emphasis on banks having sufficient reserves has intensified due to recent concerns about liquidity shortages, particularly after the incident involving Silicon Valley Bank.

By Song Seung-hyun(ssh@heraldcorp.com)