By Kim Jae-kyoung
Staff Reporter
Local banks have been growing bigger as they engage in aggressive asset expansion, but they are also getting weaker with profitability deteriorating as a result of cutthroat competition to increase their size.
According to earnings data from six domestic banks ― Kookmin, Woori, Shinhan, Hana, the Industrial Bank of Korea (IBK) and Korea Exchange Bank (KEB) ― all six lenders saw their assets balloon in the first half amid falling profitability and financial soundness.
Hana Bank ranked bottom in profitability, with its net interest margin (NIM) falling to the lowest among the six. The NIM is a measurement of the difference between the interest of the income generated by banks and the amount of interest paid out to their lenders
Hana's NIM stood at 2.05 percent in June, down from 2.36 percent in December. Shinhan followed with 2.1 percent; Woori, 2.14 percent; IBK, 2.54 percent; KEB, 2.92 percent,and Kookmin, 2.98 percent.
Local lenders also performed poorly in return on assets (ROA), another key barometer for profitability. Kookmin was the only local bank with over 1 percent in ROA.
The nation's largest lender recorded 1.1 percent in ROA in June, down 0.24 percentage points from six months ago, followed by IBK (0.97 percent), Shinhan (0.9 percent), Hana (0.81 percent) and Woori (0.78 percent).
At an investor relations session, Friday, Hana Financial Group CEO Kim Seung-yu said that he would put the bank on an emergency footing, citing poor business performance and a stock price plunge.
``I'm very disappointed at the second quarter earnings results. We failed to meet internal targets in ROE (15 percent) and ROA. Also, the non-performing loan ratio is deteriorating,'' Kim said.
During the first half, all six lenders increased their size, but stepped back from financial soundness due to reckless lending practices.
``Local lenders focused more on expanding assets rather than on improving profitability,'' a market analyst said. ``They were in a cutthroat competition to extend loans to small and medium-sized enterprises (SMEs).''
As a result, banks have been increasingly vulnerable to loan defaults by SMEs with overdue rates on such loans growing rapidly.
Hana Bank saw the overdue rate on loans to small and medium firms surge to 1.71 percent in May compared with 1 percent in June 2007. The rate at Shinhan Bank increased from 0.72 percent to 1.25 percent during the same period, while that at Kookmin Bank jumped from 0.55 percent to 0.9 percent.
With growth-oriented strategy dominating the banking industry, the six lenders saw their total assets grow by more than 10 percent on average for the first six months of the year.
Kookmin increased its total assets by 11.1 percent to 258 trillion won between January and June, while Woori and Shinhan raised their assets by 7.7 percent and 10 percent, respectively, to 236 trillion won and 232.3 trillion won. Hana ranked fourth with total assets of 147.5 trillion won, followed by IBK with 135.4 trillion won.
Kookmin posted a net profit of 644.4 billion won in the second quarter, compared with 236.3 billion won a year earlier. Woori logged a net profit of 347.4 billion in the second quarter, down 34.4 percent.
Shinhan recorded a net profit of 493.9 billion won in the second quarter, off 30.4 percent, while Hana posted a net profit of 296 billion won in the second quarter of the year, compared with 133 billion won a year earlier.
Net profits for IBK and KEB reached 282 billion won and 246.4 billion won, respectively, down from 315 billion won and 277.2 billion won a year earlier.
Alarmed at worsening financial soundness, local bank CEOs have said that they will put top priority on improving financial soundness and profitability in the latter half.
At a recent business strategy meeting, Shinhan Bank CEO Shin Sang-hoon said the bank should take preemptive measures to stave off risks associated with the uncertain environment while maintaining assets at the optimal level.
Woori Bank CEO Lee Jong-hwi also said that the bank would pursue a balanced growth in the latter half with more focus on profitability and soundness, citing growing uncertainties, such as volatile interest rates, oil prices and foreign exchange rates.
At a recent press conference, IBK CEO Yun Yong-ro forecast that its NIM would decrease further down the road, due to growing competition in the banking industry, saying, ``Our challenge is to achieve a reasonable growth target while maintaining the NIM at the proper level.''