Korean banks’ net profit drops 25.3% in Q1

The combined earnings of South Korean banks fell 25.3 percent on-year in the first quarter on contracting interest income and profitability, the Financial Supervisory Service said Thursday.

The combined net income of the 18 local banks stood at 1.3 trillion won ($1.26 billion) in the first three months of the year, compared with 1.7 trillion won the previous year, according to nation’s financial watchdog.

The fall appeared to be on account of a falling interest rate income triggered by a long streak of low rates handed down by the country’s central bank, the FSS said.

The Bank of Korea held the benchmark interest rate at 2.5 percent for the 11th straight month in April under the new central bank governor, Lee Ju-yeol.

Interest income decreased by 300 billion won to 8.5 trillion won in the January-March period from a year ago, with the banks’ net interest margin, a key gauge of their profitability, coming in at 1.8 percent, the lowest since 1.72 percent in the second quarter of 2009 in the aftermath of the global financial crisis.

Their noninterest income from stock and bond investments shrank 55.9 percent on-year to 500 billion won from 1.2 trillion won over the cited period, due to a drop in stock prices of ailing companies, the watchdog said.

Return on assets, another measure of banks’ profitability, stood at 0.28 percent in the first quarter, down 0.1 percent from a year earlier. The first-quarter ROA hit the lowest mark since the first quarter of 2009, when it reached 0.1 percent.

The return on equity also fell to a five-year low of 3.58 percent as of end-March, down 1.31 percentage points from the previous year, the FSS said.

By Bae Hyun-jung and news reports
(tellme@heraldcorp.com)