Published : Feb. 18, 2016 - 18:10
Profits of local banks last year plunged to their lowest in more than a decade with their margins from lending hitting a fresh low.
According to the regulator Financial Supervisory Service on Thursday, the combined net profit of the country’s 18 commercial and state-run banks dropped 42.6 percent on-year to 3.5 trillion won ($2.85 billion).
This is the lowest level since 2003, the height of a crippling credit card lending crisis.
(The Korea Herald)
“While the net interest margin continued to decline, hitting a new record, loan-loss provisions grew significantly with respect to debt restructuring of troubled companies, which all hurt the banks’ bottom line,” a FSS official explained.
All gauges pointed to declining profitability.
Net interest margin -- a key measure of a bank’s profitability that shows earnings on loans -- dropped to a fresh low of 1.58 percent. Return on assets and return on equity, both of which show how effectively banks are using resources to generate profits, fell to their lowest levels since 2000. ROA came in at 0.16 percent, down 0.15 percentage point from the previous year, while ROE shed 1.91 percentage points to 2.14 percent.
The banks set aside 11.7 trillion won, 26.8 percent more than the previous year’s amount, as a buffer against potential loan defaults, as corporate restructuring increased in industries hit by a global market slump.
Increased labor costs also put pressure on bottom lines. Major local banks shed hundreds of staff through voluntary redundancy programs in recent months, which resulted in spikes in severance pay.
Experts see no turnaround in profitability in sight for banks in the near future, as the Bank of Korea is widely expected to lower the policy rate and default risks are projected to grow amid global economic woes.
By Lee Sun-young
(milaya@heraldcorp.com)