Banks outdone by insurers in net profit

South Korean banks were most likely outdone by local insurers in terms of net profit last year for the first time in the country's financial history, industry data indicated Monday, with market watchers placing the blame on the lenders for the reversal.

Eighteen local lenders, including No. 1 commercial bank Shinhan Bank and state-run Korea Development Bank, posted a combined 6.2 trillion won ($5.7 billion) in net income in 2014, according to the data.

Net profit of 56 life and non-life insurers came to 5.1 trillion won through September of last year, and their yearly income is expected to reach at least 6.6 trillion won with a minimum fourth-quarter estimate of 1.5 trillion won.

It was the first time that insurance firms' earnings surpassed those of banks since a modern commercial bank and an insurance firm were first established in Korea in 1897 and 1922, respectively.

By company, largest life insurer Samsung Life Insurance Co.reported 1.4 trillion won in net profit last year, followed by major lenders Woori Bank with 1.2 trillion won, Kookmin Bank with 1 trillion won and Hana Bank with 900 billion won.

Only Shinhan Bank posted a net 1.5 trillion won to earn slightly more than Samsung Life.

The banking industry has been the face of the country's financial industry for decades, unchallenged in generating profits and incomparable with insurance companies.

Banks registered a combined 13.6 trillion won worth of net profit in 2005, with insurers earning 3.3 trillion won. Two years later, banks basked in a record-high income of 15 trillion won, compared with 3.8 trillion won for insurance firms.

The reversal came at the start of 2010 amid the global low-rate trend with the U.S. Federal Reserve maintaining its key rate at zero. South Korea's central bank lowered the policy rate twice last year and is retaining it at a record low of 2 percent.

Experts said banks are to blame for the current state, staying complacent with profit from interest instead of actively searching for new sources of income.

"Banks' NIM (net interest margin) has been on a steady decline, and their profit will likely move downward this year," said Jung Hee-soo, a senior researcher at Hana Institute of Finance. "They have to develop a new source of profit and draw up a long-term global strategy."

Banks are used to filling 90 percent of their profits with interest income. But their NIM sank to 1.79 percent in 2014 from 2.81 percent in 2005. They also suffered from massive bad loans extended to large companies that went bankrupt over the recent years.

The lenders' return on assets, a key gauge of profitability, came to 0.32 percent last year, compared with 1.49 percent of non-life insurers and 0.66 percent of life insurers. (Yonhap)