Lenders reap high profits by offloading E&C unit

Korean lenders saw their earnings jump 29.2 percent on-year last year on the back of a one-off gain and decreased costs to cover bad debts, the financial regulator said yesterday.

The combined net income of 18 local banks, including market leaders Kookmin Bank and Woori Bank, reached 12 trillion won ($11 billion) in 2011, up from 9.3 trillion won the previous year, according to a report by the Financial Supervisory Service (FSS).

The strong bottom line was attributed to an one-off profit reaped from selling shares of Hyundai Engineering and Construction, Korea’s top builder, according to the watchdog.

In the third quarter, Kookmin Bank and six other players earned a pre-tax profit of 3.2 trillion won by offloading their stakes in the country’s top construction firm.

However, the lenders suffered a loss of 300 billion won during the October-December period, compared with a profit of 2.3 trillion won in the third quarter, as they put aside more loan-loss reserves.

The FSS said the fall in costs to cover bad debts also helped bolster the lenders’ 2011 earnings. Expenses for soured loans that had spiked since the second quarter of 2010 trended lower, reaching 11.8 trillion won last year, down from 15 trillion won in 2010.

Net interest margin, a key gauge of profitability, came to 2.31 percent last year, gaining marginally from 2.3 percent in 2010.

Interest income rose 3.4 percent on-year to 39.3 trillion won, while non-interest profit climbed 14 percent to 8.3 trillion won, according to the FSS. Yonhap