Local branches of foreign banks operating in South Korea saw their net profit decline in recent years, bogged down by a low interest rate trend and tighter financial regulations, data showed Thursday.
   
After peaking at 2.4 trillion won (US$2.2 billion) in 2009, the combined net profit of foreign branches has been on a downward path. It declined from 1.5 trillion won in 2010 to 1.3 trillion won in 2011, 1 trillion won in 2012 and 900 trillion won in 2013, according to the data gathered from financial records.
 
Over the four-year period, their net income plunged 61 percent.
  
Their profitability also fell, with return on assets (ROA) slumping to 0.36 percent from 0.83 percent and return on equity (ROE) tumbling to 5.42 percent from 22.56 percent over the cited period.
  
There are 39 foreign banks running branches here in South Korea, including HSBC Holdings, JP Morgan Chase & Co., BNP Paribas SA, Credit Suisse AG, Deutsche Bank AG and Mitsubishi Tokyo UFJ.
U.S.-based Citigroup Inc. and British Standard Chartered Plc. set up Citibank Korea Inc. and Standard Charted Bank Korea, respectively.
  
Market insiders said the banks had basked in extended interest rate margins between their home country and South Korea in the aftermath of the 2008 financial crisis.
   
"In 2008, they were able to borrow money at lower interest rates in the U.S., while South Korean banks had to pay higher rates to get foreign exchange loans from U.S. lenders due to their lower credit ratings," an official at a foreign bank branch said, not wishing to be named.
  
Foreign branches' combined interest income soared to 2.6 trillion won in 2009 and 1.8 trillion won in 2008 from 400 billion won in 2007.
  
Volatility in the South Korean foreign exchange market also helped them earn 1.8 trillion won from derivatives trading in 2009 alone.
  
But their bullish mood ended as the interest spread narrowed on the stabilized South Korean equity market with the U.S. investment banks suffering from the sluggish world economy.
   
The foreign bank branches in South Korea were also affected as they reduced holdings of short-term loans from their headquarters and investment in debt trading after the Seoul government tightened regulations on foreign exchange trading.
   
The combined net interest income slid to 1.6 trillion won in 2013, down 38 percent from 2009, and their returns from derivatives transactions stood at 42.7 billion won on average in the 2010-2013 period.
   
"Their profitability decreased as the South Korean market became less volatile but more competitive," the official said. (Yonhap)