2024 set to be another profitable year for top 4 financial groups

Taeyoung E&C's liquidity shortage should have limited impact on banking industry: analysts

Head offices of South Korea`s top four banks, all located in Seoul (Photos provided by companies)

South Korea's top four financial groups -- KB, Shinhan, Hana and Woori -- are expected to post a combined net profit of over 17 trillion won ($13 billion) this year, buoyed by their moneylending business, according to market tracker FnGuide.

While the four firms posted an estimated net profit of 16.55 trillion won last year, the projected figure for this year is 17.23 trillion won, marking a 4.1 percent growth on-year.

Securities firms predicted KB Financial Group to garner a net profit of 5.19 trillion won, followed by Shinhan's 4.92 trillion won, Hana's 3.94 trillion won and Woori's 3.16 trillion won.

Though it is unlikely the firms’ lending businesses are to record larger earnings from interest rates as the market speculates a pivot in monetary tightening policy to come sometime this year, the earning streak is likely to continue from the growing balance of household and corporate debt.

In 2023, the top four financial groups posted an estimated earnings from interest rates of 96.2 trillion won, marking a 34.4 percent increase from 71.42 trillion won the year before.

As of Dec. 28, 2023, the balance of household loans taken out by five major banks -- including NongHyup Bank, along with the aforementioned lenders -- stood at 690.49 trillion won, taking up nearly half of the total loan balance at 1,480.67 trillion won.

Having come under fire for making money from excessively high interest rates, local banks were even pressured to roll out a combined 2 trillion won in cash funding to relieve individuals and small businesses with financial difficulties in December.

Earnings made by nonbanking businesses such as brokerage and insurer affiliates are to be a major variable as well, as local financial firms have been working on diversifying their business portfolio.

Meanwhile, experts view that the liquidity shortage crisis of Taeyoung Engineering and Construction will have a limited impact on the overall banking industry.

On Thursday, the country’s 16th-largest builder, Taeyoung E&C, applied for a debt workout with its main lender, the state-owned Korea Development Bank, due to distress from real estate project financing loans.

The financial sector's exposure to Taeyoung E&C remains at 4.58 trillion won, which accounts for 0.09 percent of the total assets in the country's financial sector. Yet there are concerns that the incident could snowball into a possible liquidity crunch across the whole real estate project financing loan market, impacting the overall financial industry.

“The banking and insurance industries are not likely to be heavily impacted by the incident,” according to analyst Kim Sun-young from Korea Investors Service, adding that the exposure amount is not large compared to the industries' total assets.

“But further monitoring is needed as the impact could vary, depending on each firm's holding of project financing loans and the outcome of creditors’ settlement.”

If the liquidity shortage of construction companies expands, local banks could take a hit. The total balance of real estate project financing loans in the financial sector stood at 134.3 trillion won as of the end of September, while the delinquency rate stood at 2.42 percent, data from the Financial Supervisory Service showed.

Among the 134.3 trillion won, banks hold 44.2 trillion won, while insurers hold 43.3 trillion won.

By Im Eun-byel(silverstar@heraldcorp.com)