BNK Financial Group forecasted that it would be able to generate normal profits in the fourth quarter this year, unlike previous years when results were pressured by one-time costs such as provisions for real estate project financing and shared finance expenses. The group also explained that although non-interest income and non-bank subsidiaries underperformed in the third quarter, performance could be lifted in the fourth quarter.
Park Seong-wook, Chief Financial Officer (CFO) of BNK Financial, said during the Q3 earnings announcement conference call on Monday, "I deeply feel the pain of the weak non-interest income," adding, "We will focus on securities and asset management to show figures that do not disappoint in the next quarter."
BNK Financial's net profit attributable to owners of the parent for the third quarter was 210.5 billion won, a decrease of 28.4% year-on-year. While the group's interest income increased by 10.6% from the previous quarter to 800.4 billion won, non-interest income plummeted by 76.8% to 40.3 billion won.
CFO Park stated, "There was a base effect from significant profits in the government bonds sector last year, resulting in a shortfall of approximately 120 billion won compared to the plan in the government bonds division." He added, "The gain on sale of loan receivables by the two banks also decreased by about 60 billion won year-on-year. Considering the increased disposal gains from Capital, the scale of the decrease in loan receivable disposal gains is approximately 25 billion won."
Profits from non-bank subsidiaries generally declined. BNK Asset Management, which posted a net profit of 37.6 billion won in the first half, recorded a net loss of 7.7 billion won in the third quarter. This was due to decreased valuation gains on proprietary asset investments and equity method earnings resulting from the domestic stock market correction, as well as the impact of not fully hedging the market risk of investment assets. BNK Investment & Securities, which earned 45.6 billion won during the same period, also saw its third-quarter net profit limited to 4.5 billion won.
CFO Park said, "In the first half, asset management generated significant profits from assets invested with seed money, but because some parts were not fully hedged, quarterly performance dropped." He added, "Investment securities were also affected as market conditions were unfavorable."
However, the core subsidiary, the bank, remained solid. Busan Bank and Gyeongnam Bank recorded net profits of 120.6 billion won and 80.5 billion won, respectively, in the third quarter. CFO Park stated, "If interest income earned from operations has not declined due to a lack of fundamental competitiveness, non-interest income can be sufficiently improved just by recovering to previous levels."
The group also forecasted that fourth-quarter results, which have been a drag on annual performance, would differ this year. CFO Park said, "Unlike in the past, normal quarterly results will be realized in the fourth quarter of this year," adding, "We expect normalization from this year as there will be no provisions for real estate project financing, shared finance costs, or conservative provisions from the supervisory authority."
Specifically, it is projected that approximately 150 billion won will be additionally accrued as provisions in the fourth quarter. The annual provision plan for this year is approximately 730 billion won, with cumulative provisions recorded through the third quarter amounting to 595 billion won.
Kim Ju-seong, Chief Risk Officer (CRO), said, "There is a possibility that some non-performing loan companies will be normalized in the fourth quarter, creating a reversal factor." He added, "We are considering a reversal of at least 20 to 30 billion won."
The group is also pursuing improvements in interest income and Net Interest Margin (NIM). The combined NIM of Busan Bank and Gyeongnam Bank was 1.80% in the third quarter, down 4bp from the previous quarter. Competition for time deposit funding and loan interest rates for high-quality companies pressured margins.
CFO Park stated, "There has been a decline in NIM due to competition during the process of expanding high-quality assets." He added, "Going forward, we will manage asset growth and profitability with equal weight." He further noted, "We are promoting measures such as expanding core deposit funding, so we expect NIM to rebound slightly after the fourth quarter," adding, "Interest income in the fourth quarter will also improve compared to the third quarter."
The plan for shareholder return is to increase the predictability of cash dividends while flexibly managing share buybacks. On this day, BNK Financial resolved on a quarterly dividend of 150 won per share and a share buyback and cancellation of 60 billion won in the second half. The annual scale of share buybacks and cancellations will total 120 billion won, including 60 billion won in the first half, an increase of 20% from the previous year.
CFO Park stated, "As net profit and ROE rise, shareholder return must also be expanded." He revealed, "We will place weight on predictability for cash dividends and approach share buybacks more flexibly."
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