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Korea Exchange Bank Profit Falls Less Than Estimate

Korea Exchange Bank, the lender being sold to Hana Financial Group Inc. by Lone Star Funds, said fourth-quarter profit fell less than analysts estimated as bad-loan provisions declined and lending margins widened.

Net income dropped 23 percent to 236.4 billion won ($214 million) in the three months ended Dec. 31 from a year earlier, the Seoul-based bank said in a regulatory filing today. That beat the 209.1 billion won average estimate of 10 analysts compiled by Bloomberg in the past 28 days.

Korea Exchange Bank’s provisions against potential loan losses dropped 24 percent to 53.2 billion won in the quarter, as government-mandated provisions, imposed to protect banks from soured construction-project loans, eased. The Financial Supervisory Service said on Feb. 1 that the combined loan-loss costs at 18 lenders fell 11 percent to 3.2 trillion won last quarter as they set aside provisions earlier in the year.

“Earnings at KEB will improve this year with lower provisions and gains from the sale of KEB’s stake in Hyundai Engineering & Construction Co.,” said Sohn Joon Beum, a banking analyst at LIG Investment & Securities Co. “Hana’s takeover of KEB will become the catalyst for KEB’s share price in the short term.”

Taxes Surge

Hana Financial Chairman Kim Seung Yu signed a contract with Lone Star’s founder John Grayken on Nov. 25 to buy a 51 percent stake in Korea Exchange Bank for 4.7 trillion won. The deal will make Hana the nation’s third-biggest financial company by assets.

Net interest margin, a measure of profitability from lending, rose 32 basis points to 2.82 percent in the fourth quarter from three months earlier, Korea Exchange Bank said. The country’s lenders have been able to charge more to borrowers after the Bank of Korea lifted the benchmark interest rate three times since July.

Taxes surged 87 percent to 74.6 billion won last quarter and gains from securities investments plunged 82 percent to 5.7 billion from a year ago, contributing to the decline in net income, according to the bank.

The company fell 1.9 percent to 10,250 won at the 3 p.m. close of Seoul trading before the earnings announcement. Hana is in talks with investors to sell new shares to finance the Korea Exchange Bank acquisition, which Kim aims to complete by the end of March.

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