Banks’ profits down 48%

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Banks’ profits down 48%

Local banks had disappointing second -quarter results in which they made 1.1 trillion won ($978 million) in net profits, down 48 percent on-year, data from the Financial Supervisory Service showed yesterday.

According to FSS data released on a quarterly basis, Korean banks earned 8.7 trillion won in interest income in the April to June period, down from 9.6 trillion won a year before.

Their non-interest income including values of securities held by banks halved to 500 billion won from 1 trillion won in the same period the year before.

Net interest margins, an indication of banks’ soundness and a gauge of profitability, was 1.88 percent, the lowest since the second quarter of 2009, when Asia’s fourth-largest economy was suffering the effects of the global financial crisis.

Market observers said net interest margins have been going down since the first quarter of 2011 because of rate cuts by the Bank of Korea.

“Interest income, which has been slammed by the central banks’ lowering of interest rates, and losses on the value of securities are the two main factors that dragged down banks’ performances,” said an official at the FSS. Meanwhile, the FSS this week ordered banks to close down branches to reduce unnecessary costs.

It asked 18 local banks to submit a report detailing the number of branches that posted losses and their plans to turn around the problematic branches.

Market observers said the financial watchdog wants to take preemptive measures before the banks’ financial soundness collapse given that banks’ quarterly earnings this year showed drops of up to 40 percent compared to a year before.

“Bank branches that have been in the red for years cost money and placing too many branches in an area causes over-competition,” said an official at the FSS. “We’re trying to get banks to cut back on unreasonable expenses to manage their resources more reasonably.”

According to FSS data, 900 out of 7,700 bank branches across the country saw losses last year.

In July, FSS Governor Choi Soo-hyun said in a meeting with executives of financial holding companies that they should cut expenses and find new sources of revenue separate from interest income and holdings of securities.

BY KIM MI-JU [mijukim@joongang.co.kr]

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