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Debt drags down financial groups

Published: 06 Feb. 2014, 21:07

2013 was truly a difficult year for major financial groups due to increasing bad debt allowances for corporate restructuring, a low interest rate regimen and generally anemic growth.

Woori Financial Group, the country’s largest with 440 trillion won (408.2 billion) in assets, said yesterday that it posted 289.2 billion won in net profit last year, down 82.3 percent from the previous year.

In the fourth quarter, the group had a loss of 118.7 billion won.

The group’s flagship, Woori Bank, recorded 159.3 billion won in Q4 net profit, but annual earnings were 576 billion won, down 61.5 percent from 1.49 trillion won in 2012.

“The group’s loss includes 393.4 billion won incurred by lower sale prices of securities-related subsidiaries,” said the group in a statement. “In the midst of low growth and low interest rates, profits from interest and securities sales plunged, and mounting bad debt allowances for corporate restructuring affected the group’s performance last year.”

The group’s net interest margin (NIM) also fell 2.09 percent in Q4 compared to the previous quarter.

Hana Financial Group announced it earned 1.02 trillion won last year, down 37 percent, or 601.4 billion won, from a year earlier.

In the fourth quarter it earned 143.3 billion won, down 60 percent, or 214.6 billion won, from the third quarter. Its NIM dropped 0.19 percentage point to 1.94 percent.

“As the NIM fell, decreased profits from interest and commission fees caused the overall decline in earnings last year,” the group said.

Hana Bank, a major affiliate of the group, had a 158.6 billion won net profit in the last quarter, down 81.5 billion won, or 34 percent, from the previous quarter.

Korea Exchange Bank, taken over by the group in 2012, logged 365.7 billion won in net profit last year, down 42.3 percent from a year earlier.

KB Financial Group is scheduled to announce its performance today, and Shinhan Financial Group will announce its own result next week. Analysts forecast that Shinhan’s net profit will slide around 16 percent to 1.9 trillion won. KB is predicted to see a 21 percent drop to 1.3 trillion won.

Analysts estimated total revenues of the four major financial groups will have been slashed by about 30 percent compared to a year earlier mainly due to increased allowances for bad debt, This was triggered by the restructuring of large companies and drops in margins from deposits and loan issuances amid low interest rates.

FnGuide, a financial information provider, projected the aggregate net profits of the four financial magnets would be around 5.2 trillion won for 2013, down 27.7 percent from 2012.

Some say last year may have been rock bottom for the financial groups and that 2014 will be a bit rosier.

The Korea Institute of Finance recently predicted the banking industry would have a 30 percent increase in net profit this year.

But the massive leak of personal data from three major credit card companies, especially KB Kookmin Card, an affiliate of KB Financial Group, is expected to be a problem for the financial companies as government controls will be stepped up.

Government meddling is blamed in part for a lousy 2013.

“For the past few years, there have been too many policies that made it impossible for commercial banks and financial companies to make money,” said an industry insider.

“Even in the low interest rate environment, banks were forced to cut commissions fees, and this year won’t be favorable either.”

Macroeconomic conditions seem unfavorable for the financial industry, too.

“The continuing reduction in the U.S. Fed’s bond-buying program is expected to keep the local financial market uneasy, increasing government pressure on banks and credit companies to offer cheap loans for the working-class,” an analyst at a local securities firm said.

BY SONG SU-HYUN [[email protected]]