South Korea’s top banking groups reported their highest quarterly earnings in the first quarter of this year, thanks to improved net interest margins (NIM) amid higher lending rates. The surge in net profits comes despite the government’s ongoing efforts to tighten loans in a bid to curb snowballing household debt and their heavy exposures to the country’s sluggish shipbuilding industry.

Hana Financial Group Inc. said on Friday that its consolidated net profit for the January-March period jumped 12.4 percent from a year earlier to 492.1 billion won ($434 million). The result was higher than the market consensus of 430 billion won. The rise comes despite Hana Bank’s massive loan loss reserves set for its exposures to sinking Daewoo Shipbuilding and Marine Engineering Co. (DSME), the largest debt holding among commercial lenders. Hana Financial Group’s first-quarter net profit would hit a record 840 billion won when excluding the one-off additional allowance for the restructuring the country’s shipbuilding sector.

Hana Financial Group’s better-than-expected earnings came after its peers earlier reported their highest-ever quarterly earnings for the first quarter.

Shinhan Financial Group Co. posted a net profit of 997.1 billion won in the first quarter, up 29.3 percent from 771.4 billion won in the same period last year. The result is a whopping 62.9 percent increase from three months ago and the highest quarterly income since the financial group was established as a holding company in 2001.

KB Financial Group Inc. also recorded a net profit of 870.1 billion won in the same period, up 59.7 percent from a year earlier and almost doubling from the previous quarter’s 453.9 billion won. The group’s net income is the highest quarterly result since it became a holding company in 2008.

Net profit of Woori Bank also rose to a record quarterly high of 637.5 billion won in the first quarter.

Market analysts noted that financial groups’ record high net income is attributed to a sharp rise in their net interest margin as they hiked loan interest rates while leaving deposit interest rates on hold. The difference between deposit and loan interest widened to the 2 percent range for the first time in four years in January, resulting to a rise in their overall net interest margin (NIM) that had remained low for the past years in a historic low interest rate environment.

In the January-March period, Shinhan Financial Group’s NIM went up 0.04 percentage point on-quarter to 2.01 percent, while that of KB Financial Group 0.06 percentage point to 1.95 percent, and Woori Bank 0.07 percentage point to 1.91 percent.

The income surge from increased lending interest rates, however, is expected to stir criticism over banks’ excessive profit-making from loan-deposit margin. At a meeting with bank chiefs on Friday, Financial Supervisory Service Governor Zhin Woong-seob said that banks heavily relies on easy operations taking advantage of various policy compensation systems instead of mediating funds based on self-risk management capability and urged them to improve on this matter in the mid- to long-term.

By Kim Tae-sung and Park Yoon-ye

[ⓒ Pulse by Maeil Business Newspaper & mk.co.kr, All rights reserved]