Net Profit of South Korean Banks Flat in Q2; Profitability Much Lower than U.S. Banks


(ATTN: ADDS profitability report of banks in bottom 5 paras)

The second quarter of 2020 saw no change in the net profit of South Korean banks from the previous three months, according to data released by the Financial Supervisory Service (FSS). The combined net profit of 20 banks was 7.1 trillion won (US$5.4 billion).

The net profit of 19 ordinary banks decreased 10.1 percent to 5.4 trillion won, while the Korea Development Bank’s (KDB) net profit rose 600 billion won to 1.7 trillion won, largely due to a 1 trillion-won provision reversal of shipbuilder Hanwha Ocean Co.

The interest income of the 20 banks was 14.7 trillion won, the same as the previous quarter, despite a drop in the net interest margin (NIM). The return on assets (ROA) ratio and return on equity (ROE) ratio fell 0.01 percentage point and 0.37 percentage point on-quarter to 0.78 percent and 10.7 percent, respectively.

Non-interest income of 20 banks contracted over 15 percent to 1.8 trillion won in the second quarter due to a decrease in profit from stocks and bonds amid high borrowing costs. The aggregate loan loss expenses of the 20 banks was down 18.9 percent to 1.4 trillion won.

The FSS said it will continue to monitor the bad debt allowance of banks and push for a raise in the countercyclical capital buffer ratio, where banks will be required to hold more capital to secure financial stability, amid a global economic slowdown and monetary tightening as well as China’s real estate crisis.

The logo of the Financial Supervisory Service, provided by the agency (PHOTO NOT FOR SALE) (Yonhap)

A separate report showed that the profitability of South Korean banks was about half of that of U.S. banks. The average return on equity (ROE) ratio of domestic banks stood at 5.2 percent between 2013 and 2022, much lower than the 10.2 percent tallied by U.S. banks over the same period, the Korea Federation of Banks (KFB) said.

It was also lower compared with the 16.8 percent and 10.8 percent tallied by Canadian banks and Singaporean banks over the same period. The average return on assets ratio of domestic banks was 0.4 percent between 2013 and 2022, also lower compared with the 1.5 percent, 1.1 percent and 0.9 percent logged by U.S., Canadian and Singaporean banks, respectively.

“The ROE of domestic banks was higher than U.S. banks in the mid-2000s, but the banks failed to recover their profitability after the global financial crisis, and their ROE is currently at a low level at just over half that of U.S. banks,” the KFB said, referring to the 2008 financial crisis.

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