Shinhan Financial Q1 net plunges 81 pct on loan-loss reserves

(ATTN: UPDATES with market close in para 6; ADDS more details from investor
relations session in paras 7,13)
SEOUL, May 4 (Yonhap) -- Shinhan Financial Group Co., South Korea's No. 2
financial services company, said Monday its first-quarter earnings tumbled 81
percent from a year earlier on squeezed interest margins and higher loan-loss
reserves.
Net profit came to 118.1 billion won (US$92.4 million) in the January-March
period, compared with 620.4 billion won from the previous year, the group said in
a regulatory filing.
Sales jumped 101.9 percent on-year to 22.4 trillion won while operating profit
declined 76 percent to 205.7 billion won, it added.
"The weaker bottom line came mainly because interest income declined amid falling
market rates and the group set aside more loan-loss reserves to brace for the
ongoing corporate revamp drive," an official at the group said. The company set
aside 581.1 billion won in reserves in the first quarter, up 465.2 percent from a
year earlier.
South Korean banks, which are in the process of restructuring ailing companies,
are putting aside more reserves as the number of problem loans piles up,
compromising their financial health.
Despite tumbling earnings, the group's shares closed up 7.26 percent at 34,000
won on the main bourse.
"The group's lending to the local shipping sector reached 3 trillion won... Its
additional provisions related to an overhaul of shipping companies will not
exceed 200 billion won," Choi Buhm-soo, deputy president of Shinhan Financial
Group, said at an investor relations session.
Shinhan Financial Group's dented profitability highlights the difficulties Korean
financial institutions face in the slowing economy.
Shinhan Bank, the flagship unit of the group, posted a net profit of 73.7 billion
won, down 80.7 percent from a year earlier.
The lender's net interest margin (NIM), a key barometer of profitability, reached
1.66 percent in the first quarter, down 0.48 percentage point from three months
earlier as returns on certificates of deposit (CDs), which are tied to lending
rates, sharply declined.
South Korea's central bank had made six consecutive rate cuts totaling 3.25
percentage points to an all-time low of 2 percent until February, which pulled
down market rates like yields on CDs.
"But in the second half, the NIM is expected to rise as a loan-deposit spread is
improving," the official said.
The group said at the session that the NIM may fall by an additional 0.2
percentage point in the second quarter but that afterwards there would be no
further fall in the margin.
Shinhan Bank's capital adequacy ratio, a key gauge of financial health, reached
14.5 percent as of end-March, up from 13.4 percent at the end of last year. The
group's ratio rose 1.4 percentage points on-quarter to 11.6 percent on the back
of 1.3 trillion won in new share offerings.
But the bank's loan delinquency rate is on the rise as the slowing economy is
increasing the amount of bad debts. Its loan default rate came in at 0.9 percent,
up from 0.72 percent three months earlier, it added.
The group's total assets reached 325.1 trillion won as of the end of March, up
6.8 percent from a year earlier.
sooyeon@yna.co.kr
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