Nov. 1 (Bloomberg) -- Shinhan Financial Group Ltd., South Korea's second-largest lender, said third-quarter profit rose 26 percent to the second-highest on record, generating funds for a planned acquisition of the nation's No. 3 credit-card company.
Net income at the Seoul-based company climbed to 407.4 billion won ($391 million) in the three months ended Sept. 30 from 324.2 billion won in the same period last year, Shinhan Financial said today. That's in line with analysts' estimates.
Shinhan joins Kookmin Bank and other lenders in reporting higher earnings in the quarter as the fastest economic growth in two years helped customers repay debt. Sustaining earnings growth is essential for Co-Chief Executives Ra Eung Chan and Lee In Ho as they complete the acquisition of Chohung, Korea's oldest bank, and plan to bid for LG Card Co.
To sustain revenue growth, Shinhan is interested in bidding for LG Card when it is sold by creditor banks, Shinhan Financial's Lee told investors in Seoul today.
Shinhan Financial last month hired UBS AG as an adviser for the acquisition, according to bankers involved in the transaction. Shinhan's Lee said a controlling stake in LG Card may cost more than 3 trillion won.
Ra said on June 4 the company may bid for Korea Exchange if controlling shareholder Lone Star Funds decides to sell its stake. The lock-up period on Dallas-based Lone Star's holding expired last month, meaning the fund can start seeking buyers for its 3.9 trillion won stake.
Bad debt -- loans on which interest hasn't been paid for more than three months or to customers with poor credit histories -- accounted for 1.3 percent of Shinhan Financial's overall loans as of Sept. 30, compared with 1.71 percent as of Dec. 31.
In the first nine months of this year, Shinhan Financial's net income rose 59 percent to 1.27 trillion won from 794.6 billion won a year earlier.
Lee said the group aims to increase revenues from fees and other non-interest income to 33 percent of overall revenue from the current 10 percent as loan margins shrink. Shinhan Financial plans to incorporate Shinhan Life Insurance Co. as part of the holding company in December.
Lee is counting on the scheduled merger of Chohung Bank, acquired in 2003, with Shinhan Bank next year to help non- banking units sell more financial products.
The merger of the two banks will cost a total of 600 billion won, including 230 billion won to integrate computing systems, by 2010, Lee said today. Still, the merger will generate a combined 1.6 trillion won of benefits, measured by increased sales of financial products and lower operational costs.
Shinhan Bank, the parent's main unit, today said net income on a non-consolidated basis fell 26 percent in the quarter to 160.9 billion won. Its won-denominated loans rose 10 percent until Sept. 30 from the end of last year.
Chohung Bank reported net income tripled to 181.8 billion won. Chohung cut credit costs in the first nine months by 35 percent to 535.7 billion won even after it set aside 77.9 billion won in provisions to cover future loans. Chohung's won- denominated loans rose 7.3 percent as of Sept. 30 from the end of last year.
Kookmin, Shinhan Financial and four other banks posted a combined 2.85 trillion won net income in the third-quarter, up 91 percent from 1.49 trillion won in the same period last year, according to Bloomberg News calculations. Shinhan Financial's profits indicated 21 percent of returns on its equity, compared with 15.9 percent one year ago.
Optimism about a recovery in banks' earnings and improved financial sector stability spurred Standard & Poor's on Sept. 29 to raise the credit rating on Shinhan and other banks to the highest in eight years.
Finance Minister Han Duck Soo said on Oct. 7 that South Korea's economy may expand 5 percent in the third quarter, from 3.3 percent growth in the second. Bank of Korea Governor Park Seung said growth will accelerate to 5 percent next year from an estimated 3.8 percent in 2005.
The central bank's first rate increase in more than three years last month will boost earnings at banks, analysts said as about 70 percent of their loan products move in step with its rates while existing deposit rates typically lag increases.
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