Lower credit costs drove Korean banks' profits to KRW3.7 trillion: Moody’s

Policy banks led the higher profits.

Korean banks reported provisional net profits of KRW3.7 trillion for the first half of 2014, a result which improved 37% from the same period in 2013, driven by a 26% lowering of provision charges.

According to a research report from Moody’s Investors Service, the higher profits were led by policy banks, which posted earnings totaling KRW800 billion versus almost no profit in 1H 2013.

So far, the banks’ asset quality performed better than we had expected, with sector return-on-assets improving to 0.40% compared to 0.22% in FY2013.

Nevertheless, Moody’s Investors Service maintains its stable outlook on Korean banks, as highly leveraged corporates in problematic sectors continue restructuring, failure of which could lead to higher bank provision charges in the latter half 2014, and also due to downside risks on net interest margins (NIMs).

Here’s more from Moody’s Investors Service:

According to preliminary data released by the Financial Supervisory Service, the Korean banking sector reported a 37% rise in net profits in 1H 2014 to KRW3.7 trillion, after taking into account contingent credit loss reserves.

The increase was due to a 28% fall in provision expenses, as well as a 24% increase in non-interest income.

Pre-provision income was flat year-on-year at KRW9.1 trillion.

Policy banks posted net profits of KRW800 billion in the first half of 2014, compared to almost no earnings in previous years, largely due to a significant decrease in provision charges related to the shipbuilding sector to which such banks have greater exposures.

Commercial banks saw their profits rise by 18% year-on-year, while that of regional banks remained stable compared to the previous years.