South Korean Banks’ Profit Drops 59% in Absence of Asset Sales

South Korean banks’ combined profit dropped 59 percent in the second quarter from a year earlier, when the lenders posted gains from selling stakes in a construction company.

Net income at the 18 lenders fell to 2.4 trillion won ($2.1 billion) in the three months ended June 30 from 5.8 trillion won a year earlier, when they booked 3.2 trillion won from the sales of Hyundai Engineering & Construction Co. (000720) shares, the Financial Supervisory Service said in an e-mailed statement today.

Narrower loan margins and increased provisions for bad debts also weighed on the earnings, according to today’s statement. Profit prospects for banks including KB Financial Group Inc. (105560) and Hana Financial Group Inc. (086790) are waning as the economic slowdown forces them to set aside more cash for soured loans and the central bank cuts interest rates to spur growth.

Net interest margin, a key measure of profitability from lending, declined to 2.13 percent last quarter from 2.32 percent a year earlier. Loan-loss provisions rose to 2.3 trillion won from 2.1 trillion won, according to the FSS.

KB Financial, owner of Kookmin Bank, the country’s biggest lender, said on July 27 that second-quarter profit dropped 33 percent from a year earlier after it set aside more funds for bad debt. It booked a 413.9 billion won pretax gain from selling a stake in Hyundai Engineering a year earlier.

South Korean lenders including KB Financial acquired stakes in Hyundai Engineering after swapping loans into stock following its debt restructuring in 2000.

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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