KB Financial Group Inc. reclaimed its title as South Korea’s top financial group in the second quarter as it came out relatively unscathed from the country’s hedge fund fiasco.

KB Financial Group posted a net profit of 981.8 billion won ($823.9 million) in the quarter ended June, surpassing last year’s leader Shinhan Financial Group Co., which netted 873.2 billion won.

Hana Financial Group Inc. came third with 687.6 billion won, followed by Woori Financial Group Inc. with 142.3 billion won. NongHyup Financial Group Inc., whose financial statements are due out Tuesday, is expected to edge out Woori with a slightly better profit than the previous quarter’s 338.7 billion won.

In terms of 2019 net profit, Shinhan had topped the list with 3.4 trillion won, trailed by KB with 3.31 trillion won. Hana finished third with 2.41 trillion won, followed by Woori with 1.9 trillion won and NongHyup with 1.78 trillion won.

Shinhan, Woori and Hana had to set aside massive loan-loss provisions this year to cover investor losses arising from private equity scandals involving Lime Asset Management and German Heritage derivatives-linked securities (DLS) on top of possible loan losses stemming from the coronavirus-driven economic fallout.

Shinhan Investment Corp. stowed away 201.7 billion won for potential losses in the second quarter. This includes 124.8 billion won from the 380 billion won worth of DLS funds it sold. It also set aside 76.9 billion won, or one-third of its Lime fund sales, to prepare for future costs.

Shinhan Financial Group socked away an extra 185 billion won to cover potential loan losses from borrowers hurt by the coronavirus pandemic.

Meanwhile, KB Financial Group, which was not as involved in the hedge fund scandals as its rivals, reserved just 206 billion won for coronavirus loan losses.

Woori set aside 335.6 billion won in loan-loss provisions in the second quarter, including 160 billion won for private equity fund losses and 237.5 billion won for potential coronavirus defaults.

Woori, which does not have a brokerage arm, was hit harder than its peers Hana and NongHyup, whose loan-loss provisions were offset by huge profits from their brokerage units.

Like its rivals, Hana Financial Group also had to stockpile 432.2 billion won in the second quarter to cover potential losses, including 118.5 billion won in hedge fund related costs. Yet it was able to deliver a net profit of 1.34 trillion won in the first half – its highest since 2012 – thanks to Hana Financial Investment Co., whose net profit in the first half surged to an all-time high of 172.5 billion won on retail investors’ strong appetite for stocks.

NH Investment & Securities Co., the brokerage unit of NongHyup, also saw its net profit more than double on year to 230.5 billion won in the second quarter.

Net interest margin (NIM), a key barometer of profitability that measures the difference between what companies charge borrowers and pay depositors, fell across the board in a low interest environment.

KB Financial Group’s NIM in the second quarter was 1.74 percent, down 10 basis points from the previous three months. Shinhan Financial Group fell 2 basis points to 1.84 percent. Woori Financial Group remained unchanged at 1.62 percent while Woori Financial Group dipped 5 basis points to 1.58 percent.

By bank, Kookmin Bank fell 6 basis points to 1.50 percent. Shinhan Bank and Hana Bank each edged down 2 basis points to 1.39 percent and 1.37 percent, respectively. Woori Bank slipped 4 basis points to 1.34 percent.

Experts said the broad decline in NIM was largely due to interest rate cuts. Korea’s benchmark rate is currently at a record low of 0.5 percent, down 75 basis points since March this year to fight the economic fallout from the pandemic.

By Pulse

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