Foreign banks suffer worsening performance

By Lee Kyung-min

Two foreign-invested commercial banks saw their profits drop in the third quarter of 2018, in stark contrast to their local counterparts, which posted record-breaking profits in the same period.

Citibank Korea and Standard Chartered (SC) Bank Korea said their profit deteriorated due to an increase in loan loss reserves.

The reserves are the amount banks have to set aside against a possible customer default. The greater the amount, the more it eats into a bank's profit.

The two posted a combined 359.1 billion won ($318 million) in net income for the first nine months of 2018, a 12.4 percent decrease from a year earlier.

On the other hand, the Korean banks posted a combined 12.4 trillion won net income for the first three quarters, a 9.7 percent jump compared to a year earlier.

By bank, SC Korea recorded a net profit of 200.9 billion won, a 15.5 percent drop compared to 2017, while Citibank Korea reaped 158.2 billion won, down 8.2 percent.

Citibank's total revenue inched up but it saw its profit margin decline as it had to pile up heavier reserves.

Its revenue stood at 922.1 billion won in the third quarter of 2018, a 1.6 percent increase from a year earlier, but the reserve amount increased 68.9 percent to 118.6 billion won from 70.2 billion won.

The bank's non-performing loan (NPL) ratio was up 13 basis points to 0.64 percent year-on-year, and NPL coverage was 209.4 percent, up by 55.4 percentage points.

“Citi Korea recorded positive operating leverage in the first nine months of 2018 which underlines the strength of our franchise despite headwinds including trade and market volatility. We will continue to focus on driving a client centric culture and digital first to deliver the best of Citi to our clients.” said Park Jin-hei, CEO of the bank said in a statement.

SC said the recent plunge in the stock market contributed to the increase in reserves among other profit-hurting factors.

“We saw an increase in general operating costs, and in reserves for stock-related funds and derivatives,” an SC official said.

“Also, we saw an overall decrease in transaction commission fees involving Equity-Linked Securities (ELS) due to the recent bearish stock market. Credit card-related fees also increased, affecting our margins.”