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South Korean Banks' Fourth-Quarter Profits Fall By a Third

Profits at South Korean banks, led by leader Kookmin Bank, fell by a third in the fourth quarter, dented by tightened provisioning rules against bad loans, a regulatory official said on Tuesday.

The combined net profit at 18 local banks came to 2.01 trillion won (US$2.14 billion) in the three months to December, Kim Dae Pyung, assistant governor of the regulatory Financial Supervisory Service, told reporters in a briefing.

The 2007 outlook for banks remains cautious, as a string of tougher rules on mortgage loans from late last year have been slamming a brake on their asset expansion, and with one-off gains seen thinned out in a lack of restructured companies up for sale.

To compensate for the sluggish mortgage market, South Korean banks are shifting their focus into credit card sales and credit loans to small or home-based businessmen, as well as preparing for overseas expansion in other parts of Asia.

That figure compared with 3.1 trillion won in the same period of 2005 and indicated a 41% drop from 3.4 trillion won in the third quarter of last year.

Kim's remarks came as banks are preparing to release their full-year earnings, which stood at a preliminary 13.5 trillion won, shy of the previous year's record 13.6 trillion won.

Provisioning charges against bad loans totaled 2.7 trillion won at local banks in the December quarter, up a net 1.7 trillion won from three months before, Kim added.

That came after the FSS lifted loan provision ratios late last year to brace for new capital adequacy ratios under Basel II, a set of standards on bank capital from late 2007, amid worries about a possible collapse in sky-rocketing apartment prices.

An increase in tax payments and administration costs also were blamed for the downbeat quarterly results, in the absence of tax benefits, and allowance packages for voluntary retirees.

The net interest margin, a key gauge of banking profitability, slid by 0.17% to an average 2.64% in 2006 from a year ago, reflecting stiff competition for asset expansion.

Despite the spike in fourth-quarter provisioning charges, cumulative bad loan charges for the whole year of 2006 were flat at 5.0 trillion won as their asset quality as a whole improved, the FSS said in a statement.

Kookmin Bank is set to unveil quarterly results on Feb. 8, preceded by second-ranked Shinhan Financial Group on Feb. 2.