The Four Major Financial Holding Companies Enter Q3 Earnings Season... Expected to Perform Well Despite Interest Rate Cuts

 

 

 

 

The four major financial holding companies are set to announce their third-quarter earnings this week. Despite the banks, their main subsidiaries, entering a phase of declining net interest margins (NIM), the increase in loan balances and relatively high loan interest rates are expected to lead to substantial interest income.

According to the financial sector on the 21st, KB Financial Group will announce its third-quarter earnings on the 24th, followed by Shinhan Financial and Woori Financial on the 25th, and Hana Financial on the 29th. They are expected to report generally favorable third-quarter results.

According to financial information provider FnGuide, the market consensus for the combined net profit of KB Financial, Shinhan, Hana, and Woori Financial for the third quarter of this year is 4.7874 trillion KRW.

This represents a 7.8% increase from the third quarter of last year (4.4423 trillion KRW) but falls short of the record high of 4.8876 trillion KRW set in the third quarter of 2022.

Looking at individual performance, KB Financial's third-quarter net profit is expected to increase by 11.9% year-on-year to 1.502 trillion KRW.

Shinhan Financial's net profit is estimated to rise by 12.1% to 1.3665 trillion KRW, and Hana Financial's by 6.5% to 1.0256 trillion KRW.

In contrast, Woori Financial is projected to see its net profit decline by 2.7% year-on-year to 893.3 billion KRW, making it the only one of the four major financial holding companies expected to post negative growth.

As the Bank of Korea enters an interest rate cut cycle, the financial holding companies, which have benefited from prolonged high-interest rates, now face a more uncertain outlook for their earnings.

Even before the interest rate cut, the sharp drop in market interest rates has made it inevitable for banks, the core subsidiaries of financial holding companies, to see a decline in their key performance indicator, net interest margin.

However, the demand for housing-related loans has surged with rising real estate prices, and the additional interest rates due to household loan restrictions mean the immediate impact on earnings is expected to be limited.

As of the 18th, the fixed interest rates for home mortgage loans at the four major commercial banks affiliated with the four financial holding companies ranged from 4.150% to 5.720% per annum, with the lower end rising by 0.160 percentage points compared to a week earlier, when the base rate was lowered by 0.25 percentage points.

Corporate loan growth is also being sustained.

Choi Jung-wook, an analyst at Hana Securities, said in a report, "Despite the decline in net interest margins, loan growth is expected to be substantial, limiting the extent of the decrease in interest income."

Brokerage firms predict that the four major financial holding companies will achieve record-high annual earnings this year.

The market consensus for the combined net profit of the four financial holding companies for this year is 16.917 trillion KRW, up 11.8% from last year. This is the first time that net profits are expected to approach 17 trillion KRW.

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The Four Major Financial Holding Companies Enter Q3 Earnings Season... Expected to Perform Well Despite Interest Rate Cuts