By Yoon Ja-young
Staff Reporter
Domestic banks recorded a 300 billion won deficit in the fourth quarter last year, the first since 2000, as their net income was halved amid the ongoing financial crisis.
According to the Financial Supervisory Service (FSS), the preliminary net income of local banks for 2008 was estimated at 7.9 trillion won, down 7.1 trillion won, or 47.4 percent, from the previous year.
The regulator attributed the fall to loan loss provisions that expanded to 9.9 trillion won from 4.5 trillion won a year earlier, to cover an increasing number of distressed loans. The fall is expected to worsen, as banks are likely to pile up more for loan loss provisions as a preemptive measure to cope with worsening capital market conditions this year.
Interest income for 2008 came to 34 trillion won, up 9.1 percent from 31.2 trillion the previous year. Non-interest income totaled 5.3 trillion won, down 50.3 percent, or 5.5 trillion won, due to the falling stock market, leading to a drop in profits from securities.
The banks' return on asset (ROA) averaged 0.49 percent, falling from 1.1 percent in 2007. Return on equity (ROE) also fell to 7.29 percent from 14.6 percent the previous year.
The statistics show a worsening net interest margin ― it fall 0.15 percentage points to 2.29 percent from 2.44 percent a year earlier.
Banks are continuing to have a difficult year, as their profitability is worsening amid falling interest rates. The high interest rate deposits and bonds they issued around the end of last year, an easy way of making up for the worsening liquidity, have turned against them, as the central bank has cut key rates.
Analysts point out that local banks' heavy dependency on interest margins, which worsened due to the bearish stock market last year, is hampering them.
Meanwhile, domestic lenders have been struggling to boost their falling capital adequacy ratios, a key barometer of financial soundness, as the slumping economy and credit crunch are increasing the amount of bad loans.
The government is seeking to launch a special fund worth 20 trillion won in the first quarter to help local banks raise their capital base. The fund will be used to buy subordinated bonds and hybrid debt from lenders.
According to financial sources, six or seven commercial banks, including No. 3 lender Woori Bank, are likely to tap the fund to raise an estimated five trillion won in capital.
Although banks can tap the fund on a voluntary basis, they are wary of using it due to fears it may tarnish their credibility.