In battle of the banks, it’s KB versus Shinhan

With local banks’ first-half earnings reports in, it’s time to check the scoreboard: which commercial bank will come out on top this year?

While Shinhan Financial Group has maintained its crown for nearly a decade, KB Financial Group has thrown down the gauntlet this time around, determined to take back its seat on the throne before the global financial meltdown of 2008.

But how did these two banks end up being the market powerhouses? Prior to the Asian financial crisis of 1997, Shinhan and KB weren’t even considered major players. But the economic catastrophe brought Korea’s bloated conglomerates down to their knees, leading their lenders to fall with them.

The survivors were the small fry that mostly lent to households.

In 2005, KB Kookmin Bank became the first bank in the nation’s history to rake in 2 trillion won ($1.8 billion) in net profit.

The bank, though, quickly fell from grace in the midst of the 2008 crisis. Rival Shinhan jumped on the opportunity, capturing the title of leading Korean bank in 2009 and defending it since then. It’s an impressive feat considering Shinhan’s holding group was only established in 2001.

While Shinhan is determined to defend its title, the inbound competition from KB is gaining. Looking at this year’s second-quarter earnings alone, KB was the winner between the two financial holding companies. KB raked in profit of 990.1 billion won ($883.17 million), 13.8 percent higher than last year.

It’s a record high since the company first adopted a holding structure in 2008.

Combined with its first-quarter performance, KB’s first-half profit was 1.86 trillion won, rising 65.3 percent from last year, the best half-year performance in the holding company’s history.

Shinhan, on the other hand, posted second-quarter profit of 892.0 billion won, nearly 100 billion won less than its rival. It was the first time since the first quarter of 2015 that KB out-earned Shinhan for the quarter.

Still, Shinhan remains a force to be reckoned with. In the first half, it made 1.89 trillion won in profit, ahead of KB by 28.9 billion won and up 29.9 percent from last year’s first-half profit.

Shinhan also has the upper hand when it comes to net margins, one of the most important indicators of a financial company’s profitability. Its second-quarter margin came out to 2.02 percent, up from 1.98 percent

KB’s net profit margin increased 1.85 percent to nearly 2 percent, but still trailing behind Shinhan.

But when it comes to return on assets, also a barometer of a bank’s profitability, KB leads the pack. Its return on assets based on the first half stands at 0.96 percent, while that of Shinhan stands at 0.95 percent.

When excluding the reversal of allowance for bad debts held by Shinhan Card, the holdings company’s return on assets falls to 0.81 percent.

Profitability-wise, it’s difficult to decide who will come out triumphant at the end of the year because management and stability are also crucial when predicting a company’s future.

Shinhan Financial Group recently completed an executive transition without any trouble, with Cho Yong-byoung assuming the chairman role this March. His term will last three years.

The tenure of KB’s chairman, Yoon Jong-kyoo, ends this November. He came to rescue the company when an internal feud tarnished its reputation and cost two top executives their jobs. Given the recent performance of its subsidiaries, some speculate it shouldn’t be a problem for Yoon to extend his time at KB.

He has one obstacle though: the bank’s labor union, which is furious about the chairman’s relentless drive for higher numbers.

“Diseases that made KB sick in the past are being neglected due to the recent record performance,” Park Hong-bae, head of KB Kookmin Bank’s labor union, said during a press conference last week. “Yoon has been squeezing every ounce out of the employees during his tenure, pressuring them to sell more products for the sake of performance.”

The bank was said to have required employees to sell a certain number of retirement plans to its customers. The union requested the Ministry of Employment and Labor to investigate the case.

While Yoon’s future as chairman is uncertain, KB has the upper hand over Shinhan when it comes to share price estimate.

The two companies have been going back and forth when it comes to market capitalization on the main Kospi index, but analysts deem KB more promising than Shinhan.

As of July 27, the average target price of KB’s shares was 72,300 won, nearly 10,000 won higher than Shinhan’s 62,656 won.

BY KO RAN [choi.hyungjo@joongang.co.kr]