Financial groups thrive in Q2, led by Shinhan

The country’s major financial groups managed to pull off healthy profits in the second quarter despite tough economic and business conditions.

Shinhan Financial Group took the lead with 996.1 billion won ($841.5 million) in net profit, up 6.2 percent over a year earlier.

Shinhan attributed the upturn to the growth of its non-banking affiliates and expansion in overseas businesses.

“In the second quarter, Orange Life Insurance was successfully merged and this coincided with increased profits outside of net interest margins and global expansion,” the group said in a statement.

Since the banking sector, which used to be at the core of the group, faces stiff competition, the finance giant has acquired non-banking units in recent years including Orange Life and Asia Trust, a local real estate investment trust company.

The net profit from non-banking affiliates including the two new units and Shinhan Card and Shinhan Investment jumped 10.3 percent between April and June over a year earlier, while the net for Shinhan Bank edged up only 0.9 percent.

Revenues derived mostly from fees and other activities outside the core activity of lending also rose 26.7 percent compared to the same period last year, while net profit from overseas business jumped 8.7 percent.

Still, the net interest margin continued to decline as the amount of loans has been reduced.

“Due to a sharp increase in deposits, however, bank net interest margin (NIM) fell 3 basis points quarter on quarter to 1.58 percent,” said Heather Kang, an analyst at Mirae Asset Daewoo.

“In the second half of 2019, we expect the bank to temper loan growth and focus more on profitability and asset quality,” Kang said.

Though trailing behind Shinhan, KB Financial Group also saw good growth as its net profit rose 4.7 percent on year to 991.1 billion won.

Despite the sound results, Park trimmed the target price for KB since the central bank’s move to cut interest rates could affect its affiliates’ profitability.

“We revised down our target price, as we adjusted estimates for net interest margin and equity capital to reflect a possible benchmark interest rate cut and concerns over the banking sector’s weakening profit indicators,” Park said.

Hana Financial Group, however, saw its second quarter net profit fall 7.5 percent on-year to 658.4 billion won due mainly to one-time costs such as severance payments.

Woori Financial Group recorded 610.3 billion won in net profit, beating the market consensus of 577.9 billion won.

BY PARK EUN-JEE [park.eunjee@joongang.co.kr]