Domestic Banks Achieve 5.6 Trillion KRW Net Profit in Q1 Driven by Interest Income

[Asia Economy Reporter Song Seung-seop] Domestic banks achieved a net profit exceeding 5 trillion won in the first quarter of this year, driven by interest income that increased by more than 16%. Financial authorities plan to continuously encourage banks to strengthen their loss absorption capacity amid significantly heightened uncertainties.

According to the Financial Supervisory Service on the 11th, the provisional net profit of domestic banks in the first quarter was 5.6 trillion won, about 0.7% higher than the same period last year.

The performance was driven by interest income. Interest income rose to 12.6 trillion won, up 1.8 trillion won (16.9%) from 10.8 trillion won a year earlier. After deducting costs such as fund contributions and deposit insurance fees associated with loans and deposits, it increased by 17.7% to 11.1 trillion won.

The increase in interest income was due to the growth of operating assets such as loan receivables and the rise in net interest margin (NIM). The average balance of interest-earning assets grew by 285.7 trillion won (10.8%) from 2,638.3 trillion won in the first quarter of last year to 2,924 trillion won in the first quarter of this year. The net interest margin also improved by 0.09 percentage points from 1.43% to 1.53%.

On the other hand, non-interest income decreased by 1.2 trillion won (49.4%) from 2.5 trillion won to 1.3 trillion won. Although foreign exchange and derivatives-related profits increased by 200 billion won, securities-related profits and fee income decreased by 400 billion won and 20 billion won, respectively.

The profitability ratios showed a slight decline. The return on assets (ROA) was 0.68%, down 0.07 percentage points from 0.74% in the same period last year. The return on equity (ROE) also fell by 0.73 percentage points from 9.88% to 9.15%.

Selling and administrative expenses rose by 400 billion won (6.4%) from 5.7 trillion won to 6.1 trillion won. Labor costs and material costs each increased by 200 billion won. Loan loss expenses expanded by 200 billion won (41.2%) to 800 billion won due to an increase in new provisions.

The Financial Supervisory Service plans to encourage banks to strengthen their loss absorption capacity to maintain soundness amid expanding market volatility such as rapid interest rate hikes. This is because domestic and international uncertainties have significantly increased, including economic slowdowns in advanced countries, rising default risks in emerging markets, and downside risks to the domestic economy. Additionally, the FSS will continuously monitor banks’ loan loss provision records and promote institutional measures to expand loan loss provisions and capital.

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