ID :
57007
Thu, 04/23/2009 - 11:19
Auther :
Shortlink :
https://www.oananews.org//node/57007
The shortlink copeid
S. Korean banks turn corner in Q1, but outlook cloudy
By Kim Soo-yeon
SEOUL, April 23 (Yonhap) -- Most South Korean banks probably returned to the black in the first quarter on lower-than-expected provisions, but their near-term outlook remains murky due to falling margins and rising bad loans, analysts say.
The first-quarter bank earnings season kicks off on Friday, with Hana Financial
Group Inc., whose flagship unit is Hana Bank, leading off. The forecast contrasts
with their first quarterly loss in eight years for the October-December period.
According to analysts, top lender Kookmin Bank and other banks are estimated to
have logged a combined net profit of around 200 billion won (US$146.3 million)
for the January-March period thanks mainly to decreased loan-loss reserves.
In the final quarter of last year, 18 Korean lenders lost a combined 300 billion
won, stung by surging nonperforming loans stemming from the slumping economy.
"Even if local lenders post profits for the first quarter, the amount will be
small," said Lee Hyeok-jae, a bank analyst at IBK Securities Co. "Earnings will
hinge on the amount of bad-debt expenses."
Market watchers say local banks probably managed to escape from losses last
quarter as they set aside lower loan-loss reserves related to a corporate
restructuring move. The stabilizing financial market also likely helped them
reduce foreign exchange losses.
In late March, lenders decided to end support to five smaller ailing companies
and reschedule debts at 15 construction firms and shipbuilders to keep potential
defaults from denting the slowing economy following a similar move in January.
The financial watchdog estimated that the second phase of the overhaul drive
might prompt financial firms, mostly banks, to set aside about 196 billion won in
additional loan-loss reserves. Banks earmarked 1 trillion won in reserves to
brace for a corporate restructuring in the fourth quarter.
Analysts said domestic banks are expected to suffer a downturn for the time being
as lending growth is forecast to slow and their net interest margin (NIM), a key
gauge of profitability, remains under pressure amid record-low key interest
rates.
"Local banks will likely face squeezed profit margins until the second quarter
due mainly to the lingering effects of rate reductions," said Ku Yong-uk, a
senior analyst at Daewoo Securities Co.
Korean banks' NIM, or the difference between interest income and interest
expenses, reached 2.29 percent in 2008, down from 2.44 percent the previous year,
according to the watchdog.
South Korea's central bank had conducted six consecutive rate cuts into February,
pulling the key rate down to an all-time low of 2 percent, which sharply lowered
the return on bank certificates of deposit that are tied to lending rates.
On top of that, a recent rise in the loan delinquency rate is ringing an alarm
bell for local banks, raising concerns that growing problem loans will erode
their financial health.
The rate rose to 1.46 percent as of the end of March from 0.91 percent a year
earlier, though growth slowed in March on bank efforts to make their quarter-end
balance sheets look cleaner.
"As it remains uncertain when the Korean economy will begin to recover, it is
questionable whether the default rate will make moderate growth," said Lee
Jun-jae, an analyst at Korea Investment & Securities Co. "The delinquency rate
for lending to smaller companies will likely continue to rise."
Experts say that any improvement in bank earnings would hinge on how fast the
Korean economy regains its momentum.
"A turnaround in banks' earnings may come only after the second half of this
year. Despite some budding signs of improvements, it is still premature to say
that the local economy is entering a recovery phase," said Ku at Daewoo
Securities Co.
The South Korean economy, Asia's fourth-largest, shrank 5.1 percent in the fourth
quarter from three months earlier, the worst performance in 11 years, buffeted by
faltering exports and sluggish domestic demand.
The Bank of Korea has predicted that the Korean economy will contract 2.4 percent
this year. It may hit bottom in the second or third quarter, but is expected to
recover very slowly due to uncertainty about the global recession, according to
the bank.
SEOUL, April 23 (Yonhap) -- Most South Korean banks probably returned to the black in the first quarter on lower-than-expected provisions, but their near-term outlook remains murky due to falling margins and rising bad loans, analysts say.
The first-quarter bank earnings season kicks off on Friday, with Hana Financial
Group Inc., whose flagship unit is Hana Bank, leading off. The forecast contrasts
with their first quarterly loss in eight years for the October-December period.
According to analysts, top lender Kookmin Bank and other banks are estimated to
have logged a combined net profit of around 200 billion won (US$146.3 million)
for the January-March period thanks mainly to decreased loan-loss reserves.
In the final quarter of last year, 18 Korean lenders lost a combined 300 billion
won, stung by surging nonperforming loans stemming from the slumping economy.
"Even if local lenders post profits for the first quarter, the amount will be
small," said Lee Hyeok-jae, a bank analyst at IBK Securities Co. "Earnings will
hinge on the amount of bad-debt expenses."
Market watchers say local banks probably managed to escape from losses last
quarter as they set aside lower loan-loss reserves related to a corporate
restructuring move. The stabilizing financial market also likely helped them
reduce foreign exchange losses.
In late March, lenders decided to end support to five smaller ailing companies
and reschedule debts at 15 construction firms and shipbuilders to keep potential
defaults from denting the slowing economy following a similar move in January.
The financial watchdog estimated that the second phase of the overhaul drive
might prompt financial firms, mostly banks, to set aside about 196 billion won in
additional loan-loss reserves. Banks earmarked 1 trillion won in reserves to
brace for a corporate restructuring in the fourth quarter.
Analysts said domestic banks are expected to suffer a downturn for the time being
as lending growth is forecast to slow and their net interest margin (NIM), a key
gauge of profitability, remains under pressure amid record-low key interest
rates.
"Local banks will likely face squeezed profit margins until the second quarter
due mainly to the lingering effects of rate reductions," said Ku Yong-uk, a
senior analyst at Daewoo Securities Co.
Korean banks' NIM, or the difference between interest income and interest
expenses, reached 2.29 percent in 2008, down from 2.44 percent the previous year,
according to the watchdog.
South Korea's central bank had conducted six consecutive rate cuts into February,
pulling the key rate down to an all-time low of 2 percent, which sharply lowered
the return on bank certificates of deposit that are tied to lending rates.
On top of that, a recent rise in the loan delinquency rate is ringing an alarm
bell for local banks, raising concerns that growing problem loans will erode
their financial health.
The rate rose to 1.46 percent as of the end of March from 0.91 percent a year
earlier, though growth slowed in March on bank efforts to make their quarter-end
balance sheets look cleaner.
"As it remains uncertain when the Korean economy will begin to recover, it is
questionable whether the default rate will make moderate growth," said Lee
Jun-jae, an analyst at Korea Investment & Securities Co. "The delinquency rate
for lending to smaller companies will likely continue to rise."
Experts say that any improvement in bank earnings would hinge on how fast the
Korean economy regains its momentum.
"A turnaround in banks' earnings may come only after the second half of this
year. Despite some budding signs of improvements, it is still premature to say
that the local economy is entering a recovery phase," said Ku at Daewoo
Securities Co.
The South Korean economy, Asia's fourth-largest, shrank 5.1 percent in the fourth
quarter from three months earlier, the worst performance in 11 years, buffeted by
faltering exports and sluggish domestic demand.
The Bank of Korea has predicted that the Korean economy will contract 2.4 percent
this year. It may hit bottom in the second or third quarter, but is expected to
recover very slowly due to uncertainty about the global recession, according to
the bank.
