Domestic Banks, 11% Increase in Interest Income and 42% Decrease in Bad Debt Costs Last Year

[Image source=Yonhap News]

[Asia Economy Reporter Song Seung-seop] Last year, domestic banks' profits significantly increased based on interest income, while the expenses set aside for shock absorption decreased. Financial authorities plan to encourage banks to build sufficient loss-absorbing capacity.

According to financial authorities on the 19th, the provisional net income of 20 domestic banks last year was recorded at 16.9 trillion won, an increase of 4.8 trillion won (39.4%) compared to the previous year. Profits rose due to interest income and gains related to the exercise of convertible bond warrants of HMM by the Korea Development Bank (KDB), amounting to 1.8 trillion won.

Excluding KDB, the net income of 19 banks was 14.4 trillion won, up 2.8 trillion won (24.1%) during the same period. Bank interest income reached 46 trillion won, growing by 4.8 trillion won (11.7%) as operating assets such as loan receivables increased. Non-interest income decreased by 300 billion won from the previous year to 7 trillion won. Excluding KDB, it was 4.4 trillion won, a decrease of 1.6 trillion won.

The representative profitability indicator for banks, the net interest margin (NIM), was 1.45%, up 0.03 percentage points from the previous year. The spread between deposit and loan interest rates (loan-to-deposit rate) widened by 0.03 percentage points from a year ago to 1.81% on a balance basis. The return on assets (ROA) increased by 0.12 percentage points to 0.53%.

Loan loss expenses amounted to 4.1 trillion won, down 3.1 trillion won (42.7%) from the previous year. Loan loss expenses include loan loss write-offs and provisions. This is interpreted as a base effect from the significant increase in provisions in 2020. Due to loan maturity extensions and interest payment deferrals for small and medium enterprises and small business owners, delinquency rates remained low, reducing net provision inflows. Selling and administrative expenses increased by 2.2 trillion won (9.1%) from 2020 to 26.3 trillion won.

The Financial Supervisory Service emphasized, “Amid greatly expanded domestic and international economic uncertainties due to the resurgence of COVID-19 and the Ukraine crisis, it is necessary to strengthen banks' loss-absorbing capacity in preparation for the realization of potential non-performing loans. We will continue to encourage banks to expand loan loss provisions and capital so that they can faithfully perform their core functions even in the face of unexpected domestic and international economic shocks.”

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