Last Year Bank Profits Increased by 40%... Financial Authorities "Encourage Expansion of Loss Absorption Capacity"

Provisional 2021 Domestic Bank Operating Results Released
Up 4.8 Trillion KRW (39.4%) from Previous Year
FSS Urges "Provision for Loan Losses and Capital Expansion"

[Asia Economy Reporter Song Seung-seop] Last year, the net income of domestic banks in South Korea increased by nearly 40% compared to the previous year, approaching 17 trillion won. Financial authorities stated that, given the significant domestic and international economic uncertainties, they will encourage banks to strengthen their loss absorption capacity.

According to the Financial Supervisory Service on the 16th, the provisional operating performance of domestic banks in 2021 was 16.9 trillion won. This is an increase of 4.8 trillion won (39.4%) from the previous year’s 12.1 trillion won. The Korea Development Bank exercised its conversion rights on convertible bonds of HMM (formerly Hyundai Merchant Marine), increasing related profits by 1.8 trillion won. Excluding the Korea Development Bank, the net income of the remaining 19 banks was 14.4 trillion won, up 2.8 trillion won (24.1%) from 11.6 trillion won the previous year.

The Financial Supervisory Service holds the position that banks must expand their loss absorption capacity in preparation for the potential realization of latent non-performing loans. This is due to the recent resurgence of COVID-19 and the significant expansion of domestic and international economic uncertainties caused by events such as the Ukraine crisis. They plan to continuously encourage banks to increase loan loss provisions and capital to ensure that banks can perform their core functions even in the face of unexpected shocks.

In the interest sector, profits reached 46 trillion won. This is an increase of 4.8 trillion won (11.7%) from a year ago when interest income was 41.2 trillion won. After deducting fund contribution fees and deposit insurance premiums used for loans and deposits, interest income recorded 40.1 trillion won. The increase in interest income was mainly due to the growth of operating assets such as loan receivables. During the same period, the net interest margin (NIM) also rose from 1.42% to 1.45%.

Non-interest income was 7 trillion won, a decrease of 4.1% (300 billion won) from 7.3 trillion won the previous year. Excluding the Korea Development Bank, it was 4.4 trillion won, down 1.6 trillion won. Foreign exchange and derivatives-related profits decreased by 1 trillion won, and securities-related profits declined by 800 billion won due to rising interest rates.

Loan loss expenses, including loan loss write-offs and provisions, totaled 4.1 trillion won. This is a significant decrease of 42.7% (3.1 trillion won) from 7.2 trillion won the previous year. This is explained as a base effect due to the expanded scale of provisions in the previous year.

The return on assets (ROA) was 0.53%, up 0.12 percentage points from 0.42% the previous year. The return on equity (ROE) also rose by 1.46 percentage points to 7.01% from 5.54% the previous year.

Non-operating income was 500 billion won, an increase of 1.5 trillion won from the previous year. Corporate tax expenses were 6.2 trillion won, up 2.1 trillion won during the same period.

Selling and administrative expenses were 26.3 trillion won, an increase of 2.2 trillion won (9.1%) from 24.1 trillion won the previous year.

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