KB Financial Group takes top spot in terms of net profit

KB Financial Group earned more than any other banking conglomerate in the second quarter as Shinhan Financial Group was required to reserve against possible losses related to the compensation of clients.

The two groups have been running neck and neck, trading the top spot from one quarter to the next.

KB Financial Group posted a quarterly net profit of 981.8 billion won ($817 million) in the April to June period — down 0.9 percent on year, while Shinhan Financial Group, previously the No. 1 player, posted net profit of 873.1 billion won during the same period, down 12.3 percent on year.

The difference was mainly related to a "recognized expense" of 200 billion won incurred by Shinhan. The funds are reserved for possible compensation for losses suffered by clients that purchased risky products from the bank and suffered losses. The products include German Heritage derivative-linked securities (DLS) products and those related to Lime Asset Management.

The company also blamed Covid-19 for its relative weak performance, saying that the pandemic necessitated the reserving of 185 billion won.

KB Financial avoided derivative or private equity fund-related costs, but did put away 206 billion won to handle the coronavirus-related costs.

In terms of the banking business alone, KB Kookmin Bank was ahead of Shinhan Bank in the second quarter. KB Kookmin Bank posted 660.4 billion won in net profit, while Shinhan recorded 514.2 billion won.

The net interest margin, a key measure of profitability, was 1.81 percent for Shinhan Financial, 5 basis points lower than the previous quarter, and 1.74 percent for KB Financial, which is 10 basis points lower.

In terms of asset size, Shinhan Financial is still ahead of KB Financial, coming in at 578.4 trillion won in the second quarter. KB Financial’s assets totaled 569.6 trillion.

In the first half, Shinhan Financial’s net profit was 1.8 trillion won, while KB Financial's was 1.7 trillion won.

Hana Financial Group reported 1.3 trillion won of net profit in the first half, its highest since 2012. Woori Financial will report its earnings on July 27.

The impact of Covid-19 will be more apparent from the third quarter. Analysts expect KB to maintain its leading position for the rest of the year since it is relatively free of compensation claims. Earning related to the acquisition of Prudential Life will be included in KB’s report in the second half as well.

“With Prudential Life, KB Financial’s quarterly profit is expected to reach 1 trillion won,” said Choi Jung-wook, analyst from Hana Investment.

“Its asset soundness is also very good. Even if KB Financial incurs additional loss in the fourth quarter related to the coronavirus, its net profit for this year is likely to approach 3.3 trillion won.”

BY JIN EUN-SOO [jin.eunsoo@joongang.co.kr]