Bank Net Profit in H1 Drops 17.5% to 6.9 Trillion Won "Due to Increased Provisions"

[Asia Economy Reporter Kangwook Cho] The net profit of domestic banks in the first half of this year decreased by 17.5% compared to the same period last year. This is the result of banks proactively setting aside loan loss provisions in preparation for the impact of the novel coronavirus disease (COVID-19) amid a decline in net interest margin.

According to the Financial Supervisory Service on the 13th, the net profit of domestic banks in the first half of this year was 6.9 trillion won, down 17.5% (1.5 trillion won) from 8.4 trillion won in the same period last year. Looking at the second quarter alone, net profit was 3.7 trillion won, down 16.8% (700 billion won) from 4.4 trillion won a year earlier.

Interest income was 20.3 trillion won, decreasing by only 0.2% (38.9 billion won), showing a level similar to the same period last year. This was thanks to a 9.6% increase in operating assets such as loan receivables despite the decline in net interest margin (NIM). NIM has been declining since the first quarter of last year, reaching a record low. As of the second quarter of this year, it recorded 1.42%.

Non-interest income increased by 7.9% (300 billion won) to 3.6 trillion won compared to the same period last year. Securities-related income rose by 300 billion won due to the interest rate decline, and foreign exchange and derivative-related income also increased by 300 billion won due to exchange rate volatility. However, trust-related income decreased by 200 billion won due to business contraction following the overseas interest rate-linked derivative-linked fund (DLF) incident.

Selling and administrative expenses were 11.2 trillion won, similar to the same period last year, increasing by 0.6% (65.1 billion won). Material costs increased by about 100 billion won, but labor costs decreased by 100 billion won compared to the same period last year due to the base effect from the payment of early retirement benefits in the first quarter of last year.

On the other hand, loan loss expenses increased by 157.0% (2 trillion won) to 3.3 trillion won compared to the same period last year. This was because banks proactively expanded the size of loan loss provisions reflecting the recent economic situation caused by COVID-19.

Corporate tax expenses decreased by 12.6% (400 billion won) to 2.4 trillion won due to the decrease in net profit and other reasons compared to the same period last year.

The return on assets (ROA) of domestic banks in the first half was 0.49%, and the return on equity (ROE) was 6.68%, down 0.16 percentage points and 1.69 percentage points respectively from the same period last year (ROA 0.65%, ROE 8.37%).

This content was produced with the assistance of AI translation services.