Banks saw net income take beating in 2015

Korean banks suffered a sharp fall in their earnings in 2015, largely due to an increased number of bad loans to large corporations and the shrinking net interest margin (NIM).

The total net income of Korean banks stood at 3.5 trillion won ($2.8 billion) in 2015, according to data compiled by the Financial Supervisory Service on Thursday.

That figure plunged 42.6 percent compared to 2014, indicating a slump in the banking sector in the face of growing financial woes at home and abroad, as well as the waning financial capabilities of major local businesses that relied heavily on leveraging during the recent period of low interest rates.

The drop was mostly due to a falling income from interest led by a decrease in the NIM, FSS data showed.

The combined net profit of six commercial banks - Kookmin, Shinhan, Woori, KEB Hana, Standard Chartered, Citibank - fell 500 billion won to 4.4 trillion won, the data showed. That of state-run banks (Korea Development Bank and Industrial Bank of Korea), as well as Nonghyup and Suhyup, showed a 900 billion won decrease altogether, contributing to the overall drop.

State-run banks counted large loan loss expenses related to troubled companies going into the red.

The aggregate loan loss expenses for 2015 were 11.7 trillion won, up 26.8 percent from a year earlier. This increase was mostly because the expenses rose considerably in the shipbuilding sector.

“Along with the launch of workout programs for Keangnam Enterprises, Posco Plantec and DongA One Corporation, banks’ expenses for troubled shipbuilders like STX spiked year on year,” an FSS official said.

Return on assets (ROA) for the year was 0.16 percent, down 0.15 percentage point from the same period a year earlier. Return on equity (ROE) for the year was 2.14 percent, down 1.91 percentage point during the same period. The ROA and ROE recorded the lowest level since 2000.

The banks’ interest income for the year came to 33.5 trillion won, 4 percent lower than in 2014. This is because NIM was reduced, while assets under management increased. The NIM for 2015 was 1.58 percent, as interest rate cuts led to a continued fall in loan-deposit margin.

BY SONG SU-HYUN [song.suhyun@joongang.co.kr]