Feb. 4 (Bloomberg) -- Kookmin Bank, South Korea's largest, said fourth-quarter profit more than doubled as provisions for risky loans declined from a year earlier when the government raised lending safeguards.

Net income rose to 551.5 billion won ($585 million) in the three months ended Dec. 31 from 214 billion won a year earlier, Seoul-based Kookmin said today in an e-mailed statement. That compares with an average estimate of 570 billion won by 13 analysts compiled by Bloomberg News.

``Banks started to compete less in loans in the fourth quarter, which helped them get higher interest, improving their profit margins,'' said Mo Jae Sung, a Seoul-based bank analyst at Hanwha Investment Trust Management Co., which manages the equivalent of $1.1 billion. ``How successful banks are in coping with competition is the key to stabilizing their profitability this year.''

Kookmin's net interest margin, a measure of the profitability of loans, widened 6 basis points to 3.39 percent in the fourth quarter, reversing three straight quarters of declines. Kookmin and its South Korean rivals had their margins squeezed in the first nine months as investors put their money into the country's stock market, which surged 32 percent in 2007. A basis point is 0.01 percentage point.

Kookmin rose 0.8 percent to 61,900 won in Seoul trading today before its earnings announcement following the 3 p.m. market close.

Shinhan Earnings

Shinhan Financial Group, the country's second-largest financial services company, joined Kookmin in reporting a wider net interest margin for its main banking unit, Shinhan Bank. It increased 9 basis points to 2.3 percent in the fourth quarter, also after three consecutive quarters of declines.

The Seoul-based company's fourth-quarter net income dropped 16 percent to 226 billion won from a year earlier as its bank and credit card units set aside more provisions against loans.

``If you take out the one-time effect, the actual drop is not as deep as it seems,'' said Ku Yong Uk, an analyst at Daewoo Securities Co., who has a ``buy'' rating on the stock.

Financial regulators announced on Jan. 15 plans to raise the provision requirement for credit card companies against unused credit and cash advances. Regulators also tightened provisioning requirements last year for loans to smaller companies.

Kookmin's provisions against loans stood at 311 billion won in the fourth quarter, down from 802 billion won a year earlier, when regulators tightened provisioning requirements for household loans, the company said in an e-mailed statement. Kookmin lends more to households than to companies.

Company Lending

Kookmin's outstanding won-denominated loans to companies rose 34 percent to 64 trillion won at the end of 2007, while household loans increased 4 percent to 89 trillion won.

Shinhan, which announced its earnings after the market closed, was unchanged in Seoul trading at 50,700 won.

South Korean banks' total corporate lending fell 4.4 trillion won in December as they curbed riskier loans to small companies to better control their profit margins, the central bank said Jan. 9.

Competition followed a rapid flow of money into the country's stock market. Funds under asset management swelled 26 percent last year to 296.4 trillion won, outstripping a 6.5 percent increase in bank deposits to 809.7 trillion won, Bank of Korea figures show.

Kookmin said it will pay an annual dividend of 2,450 won per share from 2007 profit of 2.75 trillion won.

Kookmin remains interested in buying a Kazakh bank, Chief Executive Officer Kang Chung Won reiterated today in a conference call with investors. No details on the timing or conditions of any acquisition have been determined.

Kookmin is seeking to keep its lead in Asia's fourth-largest economy by expanding at home and abroad. The bank bought 96 percent of Hannuri Investment & Securities Co. last year for 266.3 billion won ahead of rules removing barriers between banks, securities firms and asset managers that will allow them to offer wider services. The rule changes take effect in 2009.

To contact the reporter on this story: Bomi Lim in Seoul at blim30@bloomberg.net

Last Updated: February 4, 2008 02:59 EST