S. Korean banks' Q1 net plunges 75 pct

SEOUL, April 30 (Yonhap) -- South Korean banks' total earnings tumbled 74.9 percent in the first quarter from a year earlier on squeezed interest margins and higher loan-loss reserves, the financial watchdog said Thursday.

The combined net profit of 18 commercial and state-run lenders reached 800
billion won (US$596.8 million) in the January-March period, compared with 3.3
trillion won the previous year, according to a preliminary estimate by the
Financial Supervisory Service.
"Falling market rates dented local banks' net interest margin (NIM), a key
barometer of profitability, last quarter, sending their interest income lower,"
the watchdog said.
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 is tied to lending rates.
Korean banks' NIM, or the difference between interest income and interest
expenses, came in at 1.91 percent in the first quarter, down from 2.38 percent
the previous year, according to the watchdog.
Banks' total interest income declined 4.1 percent on-year to 7.8 trillion won
while their non-interest income gained 8.8 percent to 2 trillion won due to sales
of bond holdings.
Meanwhile, loan-loss reserves jumped 174.5 percent on-year to 4.4 trillion won as
the slumping economy jacked up non-performing loans.
Bad debts are piling up at local lenders due to the slowing economy and a
corporate revamp drive, compromising their financial soundness. The delinquency
rate for bank loans rose to 1.46 percent as of the end of March from 0.91 percent
a year earlier.
"A deteriorating interest margin is likely to ease as falling rates will be
reflected in banks' funding costs, but the size of local banks' loan-loss
reserves and earnings will hinge on economic conditions at home and abroad," the
watchdog said.