Shinhan Financial Group Chairman Han Dong-woo announced the group’s 2013 operational results on Feb. 11 with net profit coming to 1.903 trillion won and a fourth quarter net profit of 343.3 billion won with interest earnings down 5.4 percent YoY at 6.603 trillion won due mainly to a 23 bp fall in net interest margin for the banks and 19 bp for credit card companies.
Despite the reduced interest rate margin, the group chose stability in its operation by searching out financially strong customers for its qualitative growth, resulting in a climb of NIM from the second half of last year, putting its operation back on track. For the credit card operation, NIM rose to 31 bp with its funding costs down, slowing down the reductions in its interest earnings.
The group’s loan losses came to 1.184 trillion won, down 10.5 percent YoY at the ratio of 0.59 percent, which is a drop of 7 bp from the 0.66 percent averaged over the last six years. The loan loss provision was increased due to restructuring for large corporate borrowers like STX and Kyungnam Enterprise last year.
In the case of the credit card operation, the reductions in debt recovery and increases in problem loans compared to those in the preceding year slowed down in the second half, stabilizing loan loss provisions.
The default rates of both the bank and the credit card business amounted to 22 bp and 55 bp respectively, down 0.39 bp and 1.80 percent the non-performing loans ratio also improved to a satisfactory level, improving the soundness of their assets. The ratio of non-performing loans has been on a stable level with the NPL coverage ratio the highest in the industry at 163 percent owing to their conservative loan loss provision policies, projecting that the loan loss expense would not be large.
Marketing expenses have only seen a 3.5 percent increase over those last year due to group-wide efforts to cut expenses and raise the effectiveness of the operation throughout last year.
The annual marketing expenses for the bank and the group have been limited, rising moderately to 52.4 percent and 52.3 percent, respectively, due to decreases in total earnings for the bank as well as for the group as a whole caused by the economic slowdown.
The non-banking sector of the group, such as securities, credit card, and asset management, have made a huge contribution to the group’s defensive effort to keep its net profits from falling from the previous year. Their share in the group’s net profit continues to be the highest among the financial holding companies at 38 percent. They covered for the loss in the insurance sector with the recovery of profits at securities and asset management affiliates, while losses in the credit card sector has been cut.
In the case of Shinhan Card, the company focused on cutting marketing expenses and interest payments, despite the fall in fees for member shops, to hold down the reductions in its net profit to 11.3 percent last year, far below 18 percent for the group.
Officials of Shinhan Financial Group said the prolonged low growth and low-profit period worsened the profitability of financial groups last year, but Shinhan Financial was able to achieve qualitative growth and maintained the net profit margin at a comfortable level, reducing loan loss expenses at a manageable level with preemptive measures to manage the risks in order to strengthen the stability of its management. They said Shinhan Financial was the first to achieve stability in its management and reach effective expense control among the financial groups in Korea.
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