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![[Editorial] Banking beyond margins](/_next/image?url=https%3A%2F%2Fall-logos-bucket.s3.amazonaws.com%2Fkoreaherald.com.png&w=48&q=75){kind=small}
Korea Herald
5 hours ago
- Business
- Korea Herald
[Editorial] Banking beyond margins
Korean banks reap outsized profits based on a risk-averse model that sidelines vital sectors South Korea's four largest financial groups — KB, Shinhan, Hana and Woori — posted a combined net profit of 10.33 trillion won ($7.42 billion) in the first half of 2025, setting a new record. What makes this figure striking is not only its magnitude but the underlying composition of these earnings. Despite four benchmark rate cuts by the Bank of Korea since late 2024, commercial banks promptly lowered deposit rates but were reluctant to reduce lending rates. As a result, the net interest margin — the difference between what banks pay depositors and what they charge borrowers — expanded sharply. Interest income now constitutes more than 75 percent of total bank revenue. Simply put, banks have reaped outsized profits largely by maintaining elevated lending rates and amid falling funding costs. Typically, lower base rates compress banks' margins as competition forces lenders to cut loan rates more quickly than deposit rates. South Korean banks, however, have defied this norm. The average spread between lending and deposit rates, roughly 0.5 percentage points in 2023, surged to over 1.3 points in the first five months of 2025. This extraordinary divergence reflects a blend of regulatory deference and muted competition, enabling banks to harvest windfall gains with little risk. Government policy has been complicit in this dynamic. Measures aimed at curbing household debt and cooling the overheated housing market have given banks both political cover and regulatory justification to keep lending rates high. Meanwhile, state-backed mortgage products, which now guarantee up to 90 percent of the principal, dominate new housing loans, sharply reducing the default risk for lenders and ensuring stable, low-volatility returns. The confluence of regulatory tightening and public guarantees has institutionalized a risk-averse lending model. Banks extend credit with minimal exposure and remain comfortably within regulatory bounds. Yet this model departs from the traditional role of banks as catalysts for economic growth. It encourages caution and disincentivizes the proactive capital deployment essential for innovation and structural transformation. Meanwhile, the real economy exhibits signs of strain. Growth remains sluggish, corporate investment cautious, and critical sectors like artificial intelligence, green energy and biopharmaceuticals remain undercapitalized. Lending to small and medium-sized enterprises increased by less than 1 percent in the first half of the year, while mortgage lending surged over 4 percent. This pattern signals capital flowing disproportionately into asset accumulation rather than productive enterprise — a troubling trend for South Korea's long-term productivity and competitiveness. Banks are more than mere custodians of savings. Their fundamental role in the economy is to identify viable opportunities, absorb risks and allocate capital to sectors capable of sustaining growth. South Korea's demographic headwinds and technological imperatives demand precisely this catalytic role. A banking system preoccupied with low-risk, short-term spreads is ill-suited to these challenges. President Lee Jae Myung has urged banks to move beyond reliance on interest income and play a more active role in supporting the real economy. The Financial Services Commission is reportedly developing guidelines to encourage longer-term investment in venture capital, listed equities and strategic sectors. These signals are welcome but belated. And mere exhortation will not suffice. What is required is a robust policy framework that rewards measured risk-taking. Instruments such as risk-sharing schemes, differentiated capital requirements and targeted incentives for innovation lending should be prioritized. Without such tools, banks will likely default to the safety and predictability of margin-driven profits. The stakes go beyond financial-sector efficiency. If banks continue to pocket record earnings while the innovation economy struggles for capital, South Korea could fall behind in the global contest for economic resilience. Banks can no longer afford to be passive observers of macroeconomic forces; their core mission must be to underpin and accelerate sustainable economic progress.
Korea Herald
4 days ago
- Business
- Korea Herald
Major financial groups post record profits in H1 despite economic slowdown, rate cuts
Four major financial holding companies in South Korea posted record earnings in the first half of this year despite economic uncertainties and declining interest rates, data showed Sunday. The combined net profit of KB Financial, Shinhan Financial, Hana Financial and Woori Financial totaled 10.33 trillion won ($7.47 billion) during the first six months of 2025, marking a 10.5 percent increase from the same period a year earlier, according to their regulatory filings. KB, Shinhan and Hana each posted double-digit on-year growth in net profit, setting new records for first-half earnings. In detail, KB saw its profit surge 23.8 percent on-year in the first half to 3.44 trillion won. Shinhan came in a distant second, reporting 3.04 trillion won in net profit, up 10.6 percent on-year. Hana Financial's net profit advanced 11.2 percent to 2.3 trillion won during the cited period. But Woori posted a decline in the first-half reading, with net profit falling 11.6 percent to 1.55 trillion won. The stellar performance was attributable to an increase in both interest and non-interest income. The four financial groups earned a combined 21.09 trillion won in interest income in the January-June period, despite the Bank of Korea's monetary easing cycle that began late last year. Their non-interest income also rose 7.2 percent on-year to 7.21 trillion won. Officials said that declines in interest rates and the won-US dollar exchange rates led to an overall increase in gains from securities, foreign exchange and derivatives. Higher fees from bank retirement pensions, bancassurance sales commissions and securities brokerage commissions also helped increase theirF non-interest income. The outlook for the second half, however, is not optimistic, as financial authorities have instructed banks to halve their total household loan targets for the remainder of the year amid growing concerns over surging household debt. President Lee Jae Myung has also urged financial institutions to focus more on expanding investments, rather than "clinging to easy interest gains from mortgage loans." The holding companies have announced measures to boost shareholder value, including additional share buybacks. KB Financial said it will buy back and cancel 850 billion won worth of its own stocks, while Shinhan and Hana announced similar measures worth 800 billion won and 200 billion won, respectively. (Yonhap)
The Star
7 days ago
- Business
- The Star
The evolving face of South Korea's bank governance
SEOUL: South Korea's financial giants have been working to shed their long-standing reputation for rubber-stamp governance, as diversity and boardroom expertise have visibly improved. Yet, with chief executive officers (CEOs) and legacy ties still exerting implicit power in some high-level conference rooms, the extent to which boards can hold management accountable remains in question. All four of South Korea's top financial groups now have at least two female outside directors, with women holding an average of 32% of those seats. Shinhan leads with four of nine, followed by KB with three of seven, Hana with three of nine and Woori with two of seven. Notably, the female directors are, on average, more than a decade younger than their male peers – suggesting that gender inclusion is also fostering generational renewal. Average board ages cluster between 61 and 63, with Shinhan and Woori the youngest at roughly 61.7 years old. However, none of the boards currently includes a foreign national. The last was Stuart B Solomon, a former MetLife executive who left KB in 2022. The absence is especially striking given that foreign investors now hold an average 63% stake across the four groups – more than six times the Kospi average. While not legally mandated, foreign directors are widely seen as a marker of governance transparency and stronger representation of foreign shareholders' interests. Strengthening internal oversight was the dominant theme in board appointments across Korea's top banking groups this year. Woori made the most sweeping changes, replacing four of its seven outside directors after a high-profile internal control failure led to regulatory scrutiny. It also launched an ethics and internal control committee and revamped its audit committee. New appointees include Kim Choon-soo, a compliance specialist and former head of Eugene Group's ethical management division, and Rhee Yeong-seop, a Seoul National University professor with expertise in economics and financial regulation – both expected to strengthen the group's internal controls. To support Woori's digital transformation, technology entrepreneur Kim Young-hoon, a founding member of Daou Tech, also joined the board. Still, gaps remain. Woori's board skill matrix highlights a lack of expertise in consumer protection and legal affairs – areas that need strengthening going forward. The other three groups, with more balanced skill coverage, emphasised continuity while selectively shoring up governance capabilities. Shinhan added two new directors with deep ties to Japan, preserving its long-standing alignment with the Korean-Japanese community and maintaining the share of third-generation Korean-Japanese outside directors. New appointees include Chun Myo-sang, a third-generation Korean Japanese and certified public accountant in Japan, and Yang In-jip, a Korean national with extensive professional experience in Japan, including as a tech CEO and former chair of the Korean Business Association in Japan. This enduring alignment reflects Shinhan's founding roots – established with capital from Korean Japanese investors in the 1980s – and continues to serve as a stabilising force in its maintained board stability while adding targeted expertise. New appointees include Ewha University economics professor Chah Eun-young and E-Jung Accounting CEO Kim Sun-yeop, bolstering regulatory and audit oversight. A new internal controls committee is chaired by Lee Myong-hwal, a veteran economist and policy expert. Notably, KB limits outside director terms to five years, shorter than the industry's six-year norm, underscoring its commitment to board renewal. Hana made minimal changes but focused on governance upgrades. It established an internal controls committee and added Suh Young-sook, former chief credit officer at SC Bank Korea, as its only new outside director. Though modest in scope, the move raised Hana's female director ratio and added global credit expertise. Despite formal efforts to separate management and oversight, executive influence remains entrenched. At KB and Shinhan, the CEOs of their flagship banks – Lee Hwan-ju and Jung Sang-hyuk, respectively – sit on the holding company's board as 'non-standing' directors: non-executive, non-independent, but voting members who serve on committees. — The Korea Herald/ANN
Korea Herald
22-07-2025
- Business
- Korea Herald
Checks, gaps, global voices: The evolving face of Korea's bank governance
Governance reforms gain ground amid uneven progress on diversity, independence South Korea's financial giants have been working to shed their long-standing reputation for rubber-stamp governance, as diversity and boardroom expertise have visibly improved. Yet, with CEOs and legacy ties still exerting implicit power in some high-level conference rooms, the extent to which boards can hold management accountable remains in question. All four of Korea's top financial groups now have at least two female outside directors, with women holding an average of 32 percent of those seats. Shinhan leads with four of nine, followed by KB with three of seven, Hana with three of nine and Woori with two of seven. Notably, the female directors are, on average, more than a decade younger than their male peers — suggesting that gender inclusion is also fostering generational renewal. Average board ages cluster between 61 and 63, with Shinhan and Woori the youngest at roughly 61.7 years old. However, none of the boards currently includes a foreign national. The last was Stuart B. Solomon, a former MetLife executive who left KB in 2022. The absence is especially striking given that foreign investors now hold an average 63 percent stake across the four groups — more than six times the Kospi average. While not legally mandated, foreign directors are widely seen as a marker of governance transparency and stronger representation of foreign shareholders' interests. Strengthening internal oversight was the dominant theme in board appointments across Korea's top banking groups this year. Woori made the most sweeping changes, replacing four of its seven outside directors after a high-profile internal control failure led to regulatory scrutiny. It also launched an ethics and internal control committee and revamped its audit committee. New appointees include Kim Choon-soo, a compliance specialist and former head of Eugene Group's ethical management division, and Rhee Yeong-seop, a Seoul National University professor with expertise in economics and financial regulation — both expected to strengthen the group's internal controls. To support Woori's digital transformation, tech entrepreneur Kim Young-hoon, a founding member of Daou Tech, also joined the board. Still, gaps remain. Woori's board skill matrix highlights a lack of expertise in consumer protection and legal affairs — areas that need strengthening going forward. The other three groups, with more balanced skill coverage, emphasized continuity while selectively shoring up governance capabilities. Shinhan added two new directors with deep ties to Japan, preserving its long-standing alignment with the Korean-Japanese community and maintaining the share of third-generation Korean Japanese outside directors. New appointees include Chun Myo-sang, a third-generation Korean Japanese and certified public accountant in Japan, and Yang In-jip, a Korean national with extensive professional experience in Japan, including as a tech CEO and former chair of the Korean Business Association in Japan. This enduring alignment reflects Shinhan's founding roots — established with capital from Korean Japanese investors in the 1980s — and continues to serve as a stabilizing force in its governance. KB maintained board stability while adding targeted expertise. New appointees include Ewha University economics professor Chah Eun-young and E-Jung Accounting CEO Kim Sun-yeop, bolstering regulatory and audit oversight. A new internal controls committee is chaired by Lee Myong-hwal, a veteran economist and policy expert. Notably, KB limits outside director terms to five years, shorter than the industry's six-year norm, underscoring its commitment to board renewal. Hana made minimal changes, but focused on governance upgrades. It established an internal controls committee and added Suh Young-sook, former chief credit officer at SC Bank Korea, as its only new outside director. Though modest in scope, the move raised Hana's female director ratio and added global credit expertise. Despite formal efforts to separate management and oversight, executive influence remains entrenched. At KB and Shinhan, the CEOs of their flagship banks — Lee Hwan-ju and Jung Sang-hyuk, respectively — sit on the holding company's board as 'nonstanding' directors: nonexecutive, nonindependent, but voting members who serve on committees. These positions blur the boundary between oversight and management. Hana goes further, including not only its CEO, but also two vice chairs — Lee Seung-lyul and Kang Seong-muk — on the board. In 2024, the group expanded its board to 12 members — the largest among its peers — by adding external directors to balance the increased number of internal seats. Notably, Lee remains a board member even after stepping down as Hana Bank CEO, reinforcing the view that these seats function as power bases for the group's CEO Ham Young-joo, who secured a three-year term extension in March. As foreign ownership rises, investor communication is increasingly seen as a measure of governance openness. All four groups now provide English-language disclosures, translated shareholder materials and access to electronic voting — but depth and quality still vary. Shinhan and Woori lead in outreach. From July 2024 to June this year, Shinhan held eight investor sessions involving board members, along with 24 CEO- and 43 chief financial officer-level meetings. It offers disclosures in Korean, English and Japanese and commissions third-party board evaluations. Woori conducted over 100 foreign investor meetings during the year, many attended by the CEO, signaling volume and senior-level commitment. Hana and KB focus on accessibility. Hana has held two annual investor roundtables since 2022, with full participation from outside directors. This year, it scheduled one at 10 p.m. local time to accommodate North American shareholders. KB upgraded infrastructure this year with simultaneous interpretation and livestreaming of shareholders meetings, while tailoring voting procedures for institutional and American Depositary Receipt holders. Woori, Shinhan and KB — each listed on the New York Stock Exchange — also file English-language disclosures via the US Securities and Exchange Commission, alongside Korean regulatory filings. Still, global investors see room for improvement. More frequent board engagement and clearer channels for shareholder input remain key. Amar Gill, secretary-general of the Asian Corporate Governance Association, stressed that board-level dialogue is essential not just for transparency, but to strengthen the boards themselves. 'There should at least be a designated point person on the board for foreign investors to engage with,' Gill told The Korea Herald. 'The most important part is engagement with investors at the board level, particularly from independent directors. They should be getting feedback from the market. That is how they are empowered.' He also stressed that logistical improvements around annual shareholders meetings are needed to support non-Korean shareholders. 'Two to three weeks' notice is not enough. It should be at least a month in advance. And foreign investors attending should be able to ask questions.'
Korea Herald
22-07-2025
- Business
- Korea Herald
Power or oversight? The role of board chairs at Korea's top banks
Female leadership signals progress, but legacy ties, influence still loom As global investors turn a sharper eye toward corporate governance in South Korea's financial sector, scrutiny is intensifying around the leadership of the country's top financial groups — KB, Shinhan, Hana and Woori. Boardroom composition, once treated as a procedural matter by companies, now speaks volumes about their strategic priorities and governance culture. In particular, the identity and independence of board chairs have become bellwethers for how each group balances executive power, oversight and long-term shareholder value. Here, we take a closer look at the leadership shaping Korea's four major financial groups. Women at the helm: KB, Shinhan signal progress Among the big four, Shinhan Financial Group and KB Financial Group stand out for appointing female board chairs — a rare move in the still male-dominated Korean boardroom. Shinhan led the shift early, appointing Korea's first female financial group chair in 2010, the same year it abolished CEO duality. In 2024, the group named its second, Yoon Jae-won. At 55, Yoon is the youngest chair among Korea's major financial groups. A business professor at Hongik University and a core committee member at the Korea Accounting Institute, she has played a key role in reshaping Shinhan's governance architecture. Under her leadership, the group reported the fewest financial mishaps among its peers in the recent two years and was the first to submit a regulatory 'accountability map' clarifying executive roles. As former audit committee chair, Yoon championed transparency and pushed for robust oversight mechanisms. Her impact has been felt beyond Korea. In a recent interview with The Korea Herald, the Asian Corporate Governance Association named Shinhan Korea's top performer in value enhancement, and Yoon broke new ground by independently hosting an investor meeting in Hong Kong in June — a first for a nonexecutive Korean chair. KB followed suit by appointing its first female chair, Kwon Seon-joo — a former CEO of the Industrial Bank of Korea — last year. She was succeeded in 2025 by Cho Wha-joon, signaling the group's continued commitment to board diversity. A seasoned finance executive, Cho previously served as chief financial officer of both BC Card and KT Capital, where she was also the first female CEO within KT Group. After leaving KT, she spent six years on the board of Mercedes-Benz Financial Services Korea as a director and audit committee member before joining KB's board in 2023. In contrast to peers emphasizing change, Hana Financial Group and Woori Financial Group opted for continuity by appointing seasoned male directors as chairs. At Hana, Park Dong-moon was named chair in March after serving as an outside director since 2021 — the longest tenure among current board members. A career executive, Park previously led Kolon Industries and other Kolon affiliates and is widely seen as a professional corporate manager. His ties to Kolon have drawn attention, as the group holds a 1.4 percent stake in Hana. Though modest, the cross-holding signals a longstanding business relationship that has raised questions about board independence. Proxy adviser Institutional Shareholder Services and other governance observers have flagged potential conflicts. Nonetheless, industry insiders view Park's promotion as a vote for stability, especially as the group's CEO Ham Young-joo also secured a second term in March. Woori tapped Yoon In-sub, an insurance industry veteran, as chair in March. He previously led ING Life Korea, KB Life and Fubon Hyundai Life, and was recommended by Woori strategic investor Fubon Life of Taiwan. His appointment as chair aligns with the group's planned reentry into insurance this year — a top priority as Woori looks to reduce its heavy reliance on banking, which still generates almost 90 percent of its earnings. But Yoon's reappointment came under fire earlier this year. Proxy adviser ISS recommended voting against his extension, citing a weak board response to past governance controversies surrounding former Group CEO Sohn Tae-seung. Yoon joined the board in early 2022 and served during Sohn's regulatory scrutiny, leading some to view him as partly accountable. Sohn is now under investigation for allegedly arranging illegal loans for relatives, intensifying calls for stronger risk oversight from Woori's board. Still, Yoon's elevation underscores Woori's commitment to making its insurance strategy work. He is believed to have played a central role in last year's acquisition of ABL and Tongyang Life and is expected to remain a key figure as the group charts its new path forward.
