Financial groups still reliant on banking profits

South Korea’s financial sector has yet to mature in terms of diversifying its profit-taking structure, data from the Financial Supervisory Service showed Tuesday.

According to an analysis of eight financial groups by the regulator, the commercial banking segment still accounted for their major earnings during the first half of the year.

Further, the proportion of earnings reaped by their banking business rose to 67.1 percent during the January-June period of 2015, up more than 10 percentage points from 56.9 percent over the corresponding period last year.

The portion of the nonbanking and financial investment shrank to 19.8 percent and 8.1 percent, respectively, from 20.4 percent and 9.9 percent, respectively.

Their banking business saw the first-half profit come to 2.75 trillion won ($2.29 billion) out of the total 4.1 trillion won.

In addition, a serious concern hampering the bank units is that the major part of their earnings came from their outdated profit-platform: the gap between lending and deposit rates.

When it comes to asset scale, the first-tier banks took up 82.1 percent of the total -- or 1.29 quadrillion won out of 1.57 quadrillion won -- as of June 2015.

Local financial firms appeared to have expanded nonbanking businesses, such as asset management and direct investment in the stock market, over the past decade. Under the initiative by financial authorities, they reportedly tried to overcome the conventional profit-taking structure amid the saturated banking market.

But their current position still far lags behind global major financial firms, which have developed a variety of asset management skills and customer services through the investment banking sector.

Compared to investment-oriented banks in the U.S., Europe and Japan, local players are still complacent about interest rates on loans and service charges on money transactions, market insiders say.

Rep. Shin Kyoung-min of the New Politics Alliance for Democracy cited Korea’s ranking -- 80 among 144 countries in financial market maturity or competitiveness -- assessed by the Geneva-based World Economic Forum last year.

Financial Services Commission chairman Yim Jong-yong has also pointed out the underdeveloped gaining tools of not only financial groups but also those of banks during a news outlet interview.

Yim was quoted as saying, “The present profit-taking structure is very simple. The dominant percentage is interest income, which has changed little from the pasts.”

He stressed that U.S. and Japanese banks saw their noninterest income reach half and about 40 percent of their consolidated-financial segment earnings, respectively, while that of Korean counterparts stood at below 20 percent on the average.

By Kim Yon-se (kys@heraldcorp.com)