Won appreciation clobbers U.S. and European banks

U.S. and European banks operating in Korea suffered heavily last year because of the strengthening won.

According to the Financial Supervisory Service (FSS), the net profits of eight American banks operating fell 88 percent year-on-year to 23.9 billion won ($22 million). Net profits of 13 European banks shrunk 10 percent to 373.3 billion won.

“The American and European banks are mostly centered on derivative sales and stock investments,” said a FSS official. “Therefore, they are more likely than other banks to be exposed to the won appreciation.”

While the won ended at 1,153.3 against the dollar on Dec. 31, 2011, it had appreciated to 1,071.1 by the end of last year.

The Korean currency has recently been depreciating due largely to increasing geopolitical tensions between the two Koreas. The won closed at 1,090.35 against the dollar yesterday.

Meanwhile, 18 Asian banks saw their net profits increase from a year earlier as their business centered on lending.

The combined net profits of the Asian banks were up 12.5 percent to 690.6 billion won.

The net profits of four Japanese banks surged 29.8 percent to 495.5 billion won while five Chinese banks saw their combined net profits up 7.4 percent to 138.8 billion won.

Although household borrowing has been slowing on the back of financial authorities’ pressure, last year overall debt grew close to a record 960 trillion won. This year it is expected to easily surpass 1,000 trillion won.

The net profit of the overall 39 foreign banks branches operating here fell 11.6 percent last year compared to the previous year to 1.08 trillion won ($997.2 million).

The financial regulator said although the foreign banks racked in a profit of 2.2 trillion won on foreign exchange-related investment thanks to the appreciation of the won, it suffered heavily on derivative investments.

While derivative investment profit in 2011 amounted to 518 billion won, last year the banks posted net losses amounting to nearly 2.4 trillion won.

The banks’ return on assets shrunk 0.09 percentage points to 0.44 percent. However, net interest margin, an indication of the bank soundness, was the same as the previous year at 1.96 percent.

By Lee Ho-jeong [ojlee82@joongang.co.kr]