A Swinging Performance
Record

Shinhan Financial Group sees H1 profit up 38.4 pct YoY at 1.89 tln won thanks to an increase in non-banking sector profits

Shinhan Financial Group saw its first half profit increase to 1.89 trillion won, a 38.4 percent increase compared to the same period last year due to an increase in profits in the non-banking sector including fee income and the sale of stakes in Hyundai Construction, boosting the sector's profit 45.3 percent YoY. Profits in the banking sector also increased sizably YoY, while profits in the credit card sector were also up 4.4 percent YoY at 442.1 billion won. Shinhan Card's profits increased a little over the same period last year due to reduced fees and heated competition in the market, but its operating profit rose 3.7 percent YoY.
The group's total assets rose 3.4 percent YoY, while Shinhan Bank saw its assets increase 4.7 percent and Shinhan Card's by 0.7 percent in H1 compared to yearend last year. Shinhan Bank benefited from a reduced number of its corporate customers failing financially with the loss provision falling 47.9 percent and steady net interest margin (NIM) boosting interest earnings to 1.432 trillion won in the first half, an increase of 56.3 percent YoY.
Major contributors to the group's substantial profit increase are stable asset growth and interest earnings due to steady NIM.
Due to stable asset health in the banking and credit card sectors, interest income started to increase from the second half of 2010, bringing interest earning in the first half of this year up to 9 percent YoY and up 3.8 percent from the preceding quarter.
Shinhan Bank's loans in the first half rose 4.7 percent, while Shinhan Card's sales increased 11 percent in the same period, showing the group's core assets' stable growth. The loan interest margin averaged 2.7 percent, while that for credit cards remained at 3.64 percent, up 11 basis points YoY.
Another major contributor has been the drop in the loss provision by 42.2 percent YoY, thanks to reductions in the number of corporate borrowers going belly-up and the early graduation from workouts for many corporate borrowers as well.
The loss provisions of the credit card company also fell substantially, owing to reductions in the reserve funds and defaults of its borrowers, up 41.7 percent YoY.
The ratio of the group's loss provisions amounted to 0.50 percent, down 41 basis points, recovering its normal rates, while the banks' loss provisions became stable at 0.46 percent.
The NPL ratio also fell to 1.42 percent in the first half, down 4 basis points, while the NPL coverage including loss provisions amounted to 1.47 percent, up 5 percent from yearend last year.
Another contributing factor has been the sale of the bank's stakes in Hyundai Construction, which boosted the non-banking sector's earnings 24.4 percent from the preceding quarter and up 16 percent YoY.
In the second quarter, Shinhan Bank sold 3.2 million shares of Hyundai Construction at 125,090 won each, earning 352.3 billion won in pre-tax earnings, while the fees from the sales of various funds and bancassurance increased 5.3 percent and 0.7 percent YoY, boosting Shinhan Bank's fee income in the first half by 5.1 percent YoY.
The loss provision fell 45.3 percent YoY due to reductions in the number of construction company borrowers going under restructuring, although the number of medium-sized construction firm borrowers that failed financially increased.
Shinhan Bank's operation expenses rose 9.5 percent YoY, but the interest earning rate was higher than the expenses with the rate of income increase at 36.7 percent, down 1 percent from the preceding quarter.
Shinhan Card netted 442.1 billion won in income in the H1, up 4.4 percent YoY, but down 22.7 percent from the preceding quarter.
The credit card firm managed to retain its top position in the credit card market in terms of market share amid increased competition, with a 3.7 percent increase in its profit in the first half due mostly to the reductions in the loss provision by 41.7 percent at 37.7 billion won and loan losses in Q2 of 43.8 billion won.
The credit card company's NPL rate rose to 1.66 percent in H1, rising 4 basis points from yearend 2010, while the rate of loan default rose to 1.89 percent, but have continued to maintain stable levels since the middle of 2010.nd for enhancing global competitiveness. nw

Chairman Han Dong-woo of Shinhan Financial Group.

Photo on Courtesy of SFG