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Korea's four major financial groups post record Q1 profits. But nobody's celebrating.

Published: 27 Apr. 2025, 18:31

Pedestrians pass by ATMs from firms including KB Kookmin Bank and Woori Bank in Seoul on April 27. [YONHAP]

Korea's four major financial groups — KB Financial Group, Shinhan Financial Group, Hana Financial Group and Woori Financial Group — posted nearly 5 trillion won ($3.5 billion) in combined net profit during the first quarter. But no champagne corks were popped.

While the four finance giants achieved record-breaking profits on the back of nearly 10 trillion won in interest income, mounting non-performing loans and a weakening domestic economy are clouding the outlook in the coming months.

A 10-trillion-won interest

The four groups recorded a combined net profit of 4.929 trillion won in the first quarter of 2025, up 16.8 percent from 4.222 trillion won a year earlier.

KB Financial’s net profit jumped 62.9 percent year-on-year to 1.697 trillion won during the January-to-March period. Shinhan Financial and Hana Financial also achieved record-high first-quarter earnings, with net profits rising by 12.6 percent and 9.1 percent, respectively.

Woori Financial was the only one among the four to post a decline, with its net profit falling 25.3 percent due to one-off costs such as the launch of a securities unit, despite higher interest income.

The surge in interest income primarily drove the record profits. The four groups earned 10.652 trillion won in interest income in the first quarter, up 2.3 percent from 10.405 trillion won a year ago. For comparison, Samsung Electronics’ operating profit for the first quarter was an estimated 6.6 trillion won, meaning the banks earned 1.6 times more simply through interest margins.

Typically, a decline in the central bank's standard interest rate leads to lower lending rates and shrinking interest margins, but that was not the case this time. Loan rates fell less sharply than deposit rates. According to the Korea Federation of Banks, the loan-deposit interest rate spread for the five major banks widened to a record 1.47 percentage points in February, up from 1.2 percentage points a year earlier.

Cargos are piled up at the Pyeongtaek Port in Gyeonggi on April 24. [NEWS1]

Sunny spell not too sunny

Despite the strong results, continued prosperity seems uncertain.

As the domestic economy shrank during the first three months of 2025, the growing profitability of banks is expected to fuel calls for greater social contributions.

Political pressure may rise for banks to use some of their earnings for shared growth initiatives, especially during the presidential election season.

Prolonged domestic weakness and rising uncertainty from the U.S. Donald Trump administration's tariff policies could weigh heavily, and the Bank of Korea is expected to cut its standard interest rates further, which will likely pull down loan rates over time.

A sign reads ″Private loan″ and ″SOHO [small office home office] loan″ at a bank in Seoul on April 25. [NEWS1]

Signs of strain are already appearing among borrowers. The four banks' non-performing loans reached a record 12.615 trillion won in the first quarter. Non-performing loans — those overdue by more than three months and unlikely to be repaid — had already surpassed 10 trillion won at the end of the second quarter last year and have risen by over 2 trillion won in just three quarters.

Loan delinquency rates are also rising, especially in loans to small and mid-sized enterprises. For instance, KB Kookmin Bank's corporate loan delinquency rate rose to 0.4 percent, up 0.1 percentage point from the previous quarter, the highest level in eight years since the first quarter of 2017.

“Both domestic demand and exports have remained sluggish, and high lending rates have persisted, increasing the number of vulnerable borrowers," said a commercial bank official, speaking on condition of anonymity. "While there are no immediate concerns about fiscal soundness, if the economic slump continues, the burden could start to build from the second quarter onward.”

Translated from the JoongAng Ilbo using generative AI and edited by Korea JoongAng Daily staff.
BY JEONG JIN-HO [[email protected]]