Financial holdings firms’ profits take big hit in Q3

The combined Q3 net profit of four of the nation’s major financial holdings companies - Woori, Hana, KB and Shinhan - dwindled by 17.3 percent due to a fall in their net interest margin, a gauge of profitability, with rate cuts by the Bank of Korea in addition to allocating higher reserve for court receivership of Woongjin Holdings and Kukdong Engineering and Construction.

Woori Financial Group and Hana Financial Group were the biggest gainers in the July-September period as their net profit jumped 4 percent and 14 percent each year on-year.

Woori, Korea’s top banking group, said its net profit was 503.9 billion won ($462 million) in the third quarter, compared with 485.5 billion won in the same period the previous year.

Woori said its third-quarter earnings inched up thanks to a decline in loan-loss provisions.

“The group set aside provisioning of 115 billion won to cover the failure of Woongjin in the second quarter, but it managed to bring its loan-loss reserve to 288.8 billion won in the third quarter from 924.9 billion won in the second quarter after it successfully collected outstanding loans from other firms [including Sungdong Shipbuilding and Marine Engineering],” an executive at Woori said.

Woori said its net interest margin in the third quarter stood at 2.32 percent, down 0.38 percentage points from the second quarter.

Hana Financial Group’s net profit amounted to 233.9 billion won, up 14 percent on year. But that was lower than brokerage firms’ estimate of 260 billion won.

Hana’s net interest margin also went down to 2.12 percent in the third quarter, down 0.08 percentage point in the second quarter.

Hana, too, had set aside loan-loss provisions of 69.9 billion won for the corporate overhaul of Woongjin Holdings and Kukdong Engineering & Construction in the second quarter. Its loan-loss provision grew to 341.7 billion won in the third quarter, up 86.5 billion won from the second quarter.

Shinhan Financial Group posted 485 billion won in net profit in the third quarter, slipping 31 percent from the previous quarter.

Shinhan, too, was hit hard by loan-loss provisions triggered by the Woongjin and Kukdong court corporate restructuring plan.

Shinhan Bank’s loan-loss reserve grew to 159 billion won in the third quarter.

KB Financial Group raised 410.1 billion won in the third quarter, tumbling 29 percent on year.

Over the same period, the financial group’s biggest affiliate KB Kookmin Bank posted 326.2 billion won in net profit, down 32 percent a year earlier. The bank saw losses of 138.1 billion won from appreciation of Posco shares.

The Financial Supervisory Service estimated local banks posted a combined preliminary 2 trillion won in the third quarter, down 12.5 percent on year.

Market observers said the chances are slim for banks to get in better shape in the fourth quarter and they would suffer from a gloomy performance.

“Financial holdings companies’ overall net profit for this year will be down by between 10 percent and 20 percent compared to a year ago given that many see interest rates will remain at a low level for the time being,” said an executive at the bank. “This would thus aggravate net interest margin in the fourth quarter. An also, provisions for loan losses in the fourth quarter are seasonally highest.”

An official at the FSS echoed the sentiment.

“The spread between deposit and lending rates, which hovered at 3 percentage points in the third quarter of 2011, has shrank to 2.75 percentage points in the third quarter this year,” said an FSS official. “Banks’ interest income was cut to 9.5 trillion won during the July to September period from 9.9 trillion won a year ago. Given the climate of economic conditions in general and the public’s growing demand for banks’ social responsibility amid criticism of the sector’s insatiable greed, banks will not see much improvement in the fourth quarter.”

By Kim Mi-ju [mijukim@joongang.co.kr]