Q1 earnings for financial big four decline on one-off expenses

Shinhan, Hana, Woori and KB all reported an on-year drop in earnings for the first quarter, driven largely by compensation reserves for Hong Kong-tied derivative products.

From left to right are the office buildings of KB, Shinhan, Hana and Woori financial holding firms. [EACH COMPANY]

Korea’s major financial holding firms saw first quarter earnings decline due to one-time expenses, including reserves to compensate for losses of Hong Kong-tied derivative products.

The combined net profit of Korea's big four — KB Financial Group, Shinhan Financial Group, Hana Financial Group and Woori Financial Group — totaled 4.23 trillion won ($3.1 billion) in the first quarter, down 13.6 percent from a year earlier.

Shinhan reported 1.32 trillion won in net profit in the first quarter, down 4.8 percent on year, according to its regulatory filing on Friday, beating the analyst consensus of 1.24 trillion won compiled by market tracker FnGuide.

Shinhan attributed the decline to one-off expenses, including compensation for investors of the high-risk equity-linked securities (ELS) connected to the Hang Seng China Enterprises Index (HSCEI).

The ELS fiasco took a major toll on financial companies, as the Financial Supervisory Service laid out a compensation plan for sellers of the products that caused over a trillion won in losses in the first two months of this year following the plunge of the HSCEI since its 2021 peak.

Shinhan set aside around 274 billion won in reserves for the incomplete sales of the products after selling around 2.4 trillion won, according to media reports.

The company’s interest income grew 9.4 percent on year in the January-March period to 2.82 trillion won, while its noninterest income rose 0.3 percent to 1 trillion won.

Hana's net profit dropped 6.2 percent in the first quarter compared to last year to 1.03 trillion won, according to the regulatory filing on the same day, to outpace the 906.2 billion won FnGuide estimate.

It also cited one-time expenses for the drop, including the 179.9 billion won set aside to compensate investors of the Hong Kong-tied ELS for the double-digit fall.

Hana reported 1.56 trillion won in operating profit for the quarter, up 2.92 percent on-year.

Its interest and commission incomes totaled 2.73 trillion won, up 4.3 percent over the same period.

Woori reported 824.5 billion won in net profit in the first quarter, down 9.8 percent from a year earlier, according to its regulatory filing on Friday. It also outperformed the 817.6-billion-won estimate by the FnGuide.

Its operating profit stood at 1.15 trillion won, down 8.2 percent over the same period.

The company’s interest profit fell 0.9 percent on-year to to 2.2 trillion won, but its noninterest profit grew 5.7 percent to 351 billion won.

KB on Thursday reported a 30.5 percent on-year drop in net profit in the first quarter to 1.05 trillion won due to compensation its flagship KB Kookmin Bank paid out for the ELS losses.

The bank was the largest seller of the derivative products, with sales totaling over 7 trillion won. Its expected compensation amount total 862 billion won, by far the highest among other major financial firms.

BY JIN MIN-JI [jin.minji@joongang.co.kr]