Finance group earnings at record as household credit rises
Financial groups in Korea achieved record profits in 2021, according to consensus estimates.
The four largest listed financial groups are expected to report a combined net profit of at least 14 trillion won ($11.7 billion) for 2021 as Koreans continued to binge on credit to invest in shares and property and in some cases to make ends meet.
According to FnGuide, the combined net profit of the financial groups was 14.43 trillion won, up from 10.81 trillion won in 2020.
KB Financial Group is projected to report 4.45 trillion won in net profit, Shinhan Financial Group 4.17 trillion won, Hana Financial Group 3.31 trillion won and Woori Financial Group 2.5 trillion won.
The companies are scheduled to report their earnings this week, starting with KB Financial Group on Tuesday.
Earnings of these finance companies improved as household debt increased and interest rates rose.
Household debt rose by 71.8 trillion won last year, the third largest jump annually since the data were first compiled in 2004, after 100.6 trillion won in 2020 and 78.2 trillion won in 2015.
The new household loan rate averaged 3.66 percent in December, up 0.05 percentage points from the previous month and the seventh consecutive monthly increase. It was the highest rate since August 2018.
Korea's base rate was increased twice in 2021 and once already in 2022, each time by 0.25 percentage points. The current rate is 1.25 percent.
"Demand for loans grew rapidly due to the pandemic crisis, but their earnings improved as they felt less pressure for bad debt reserves" said Kim Young-do, a researcher at Korea Institute of Finance.
Bad debt reserves are set aside to cover loans that are at risk of default, and this provisioning eats into profit until the risk passes and reserves can be released.
Banks kept relatively high bad debt reserves in 2020 due to risks associated with the pandemic. The total bad debt reserve by the four major banks — KB Kookmin Bank, Shinhan Bank, Woori Bank, Hana Bank — was 5.07 trillion won as of September last year, down six percent from 5.4 trillion won in late 2020.
With record earnings, banks are paying fat bonuses. Shinhan Bank and Hana Bank are distributing bonuses equal to around 300 percent of monthly base pay, while Woori Bank is paying about 200 percent.
The bonuses came under criticism as the difference between deposit and loan interest rates was 2.21 percent in December — the highest since August 2019.
Presidential candidate Yoon Suk-yeol of the main opposition party pledged to make it mandatory for banks to regularly report the interest rate difference for deposits and loans, and get financial authorities review them.
BY AHN HYO-SUNG, JIN MIN-JI [firstname.lastname@example.org]