South Korean banks posted more than 8 trillion won (US$7.1 billion) in combined net profit in the first six months, 1.7 times higher than a year ago. Combined interest income stood at 18 trillion won (US$15.98 billion) while non-interest income surpassed 4 trillion won (US$3.55 billion) due to a fall in the exchange rates.
According to the data released by the Financial Supervisory Service on August 8, the average net profit of domestic commercial and state lenders amounted to 8.1 trillion won (US$7.19 billion) in the first half of this year, up by 5.1 trillion won (US$4.53 billion) from 3 trillion won (US$2.66 billion) a year earlier.
Both interest and non-interest income grew evenly. The interest income increased by 1.1 trillion won (US$976.48 million) to 18 trillion won (US$15.98 billion), while the non-interest income grew by 1.3 trillion won (US$1.15 billion) to 4.5 trillion won (US$3.99 billion). In the non-interest income sector, profits from foreign currency and derivatives surged 105.8 percent to 800 billion won (US$710.16 million) because of the drop in the exchange rates and one-time profits including the sale of loans grew as well.
Net profit at local banks, which excluded sale expenses, contributions to provision for allowances and corporate tax expenses from a gross profit, stood at 8.1 trillion won (US$7.19 billion). This was largely due to the fact that contribution to provisions decreased from 8.4 trillion won (US$7.46 billion) last year to 2.7 trillion won (US$2.4 billion) this year owing to restructuring of the shipbuilding and shipping industry.
State banks that suffered most from bad loans extended to shipbuilding and other vulnerable industries, such as the Korea Development Bank and the export-import Bank of Korea, reported a dramatic turnaround to a 2.9 trillion won (US$2.57 billion) profit from a 1 trillion won (US$887.71 million) loss in the first half of last year. Net profit of commercial banks rose from 3.4 trillion won (US$3.02 billion) to 4.6 trillion won (US$4.08 billion) and that of regional banks remained the same at 600 billion won (US$532.62 million).
The return on assets (ROA), a key measure for a bank’s profitability, averaged 0.71 percent, while the return on equity (ROE) was 8.98 percent, up 0.44 percentage point and 5.55 percentage points, respectively, from a year ago.
The net interest margin (NIM) rose by 0.06 percent point to 1.61 percent in the first half of this year. The NIM is usually expressed as a percentage of what the financial institution earns on loans in a time period and other assets minus the interest paid on borrowed funds divided by the average amount of the assets on which it earned income in that time period. The banks’ NIM expanded as their deposit interest rates declined further than loan interest rates. Also, they saw their NIM grow due to growing operating assets including mortgage loans.