South Korean lenders saw their combined net profit plunge 17.5 percent on year to 6.9 trillion won ($5.8 billion) in the first six months of the year as greater loss reserves against the coronavirus fallout ate into their bottom line.

According to compiling by the Financial Supervisory Service on Thursday, local banks’ operating income before reserves reached 12.8 trillion won in the January-June period, similar to 12.6 trillion won in the same period last year. Lender set aside 3.3 trillion won in loan loss reserves, pushing down operating profit to 9.4 trillion won in the first half of the year.

The combined interest income dropped 38.9 billion won on year to 20.3 trillion won in the first six months. Still they kept up income made from near zero interest rate environment above 20 trillion won for a year-long.

Their net interest margin fell 0.17 percentage points during the cited period but assets under management increased 9.6 percent on the back of increased loans.

Net interest margin, meanwhile, has been on a decline since the first quarter of last year amid low interest rate trend. In the second quarter of this year, net interest margin reached record-low of 1.42 percent.

Lenders’ non-interest income jumped 7.9 percent to 3.6 trillion won during the same period. Income from marketable securities jumped 300 billion won amid low interest rate trend and that of foreign exchange and derivative products 300 billion won amid volatile foreign exchange market. Income from trust-related products fell 200 billion won due to business contraction.

Allowance for loan loss reserves jumped 157 percent on year to 3.3 trillion won in the first half of the year.

The FSS said that lenders expanded loan loss reserves as a preemptive move amid sluggish economic growth outlook. It brushed off concerns over immediate default issues given won-denominated default rate marked the lowest level of 0.33 percent last month.

Local banks’ return on assets (ROA) stood at 0.49 percent in the January-June period, down 0.16 percentage points from last year, and return on equity (ROE) 6.68 percent, down 1.69 percentage points during the same period.

Korea’s online-only banks, meanwhile, swung to profit in the first half of the year led by solid performance of Kakao Bank. K-Bank continued to report losses.

By Lee Eun-joo

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