Lost Trillions in Stock Value Due to High Interest Rates... Bank Sector's Net Income Declines for the First Time in 2 Years

Domestic Banks' Net Income in H1 Recorded at 9.9 Trillion KRW
Down 9.9% from 11 Trillion KRW in H1 Last Year
Increased Loan Loss Provisions and Declining Stock Values... Non-Interest Income Down 3.2 Trillion KRW

[Asia Economy Reporter Song Seung-seop] The net income indicator of domestic banks turned to a decline for the first time in two years as of the first half of the year. This was due to a significant increase in loan loss provisions, which led to a sharp rise in loan loss expenses. Additionally, the high-interest rate hike trend caused non-interest income to decrease substantially.

According to the Financial Supervisory Service on the 18th, the net income of domestic banks in the first half of this year was tentatively estimated at 9.9 trillion won. This is a decrease of 1.1 trillion won (9.9%) from 11 trillion won in the first half of last year. On a quarterly basis, it also shrank from 5.6 trillion won in the first quarter to 4.3 trillion won in the second quarter.

The increase in loan loss expenses affected the decline in net income. Loan loss expenses rose to 3.1 trillion won, up 1.1 trillion won (54.0%) from 2 trillion won in the same period last year. Banks proactively expanded provisions in the second quarter to build loss absorption capacity in preparation for worsening domestic and international economic conditions. In June, the method for calculating loan loss provisions was changed through a banking sector task force (TF), resulting in a significant increase in newly accumulated funds.

Non-interest income also decreased significantly. While non-interest income reached 5 trillion won in the first half of last year, it dropped by 3.2 trillion won (65.1%) to 1.7 trillion won this year. Although foreign exchange and derivatives-related profits increased by 200 billion won, non-interest income fell by 3.2 trillion won due to securities valuation losses caused by rising interest rates.

Financial Supervisory Service: "Will continue to encourage expansion of loss absorption capacity"

On the other hand, interest income increased by 4.1 trillion won (18.8%) to 26.2 trillion won compared to 22.1 trillion won in the same period last year. After deducting expenses such as fund contributions and deposit insurance fees associated with loans and deposits, interest income stood at about 23.1 trillion won. Operating assets such as loan receivables increased by 10.8%, and the net interest margin (NIM) rose by 0.12 percentage points.

However, the return on assets (ROA) fell by 0.14 percentage points to 0.58% compared to 0.72% in the same period last year. The return on equity (ROE) also dropped by 1.43 percentage points to 8.09% from 9.53% in the same period last year.

Selling and administrative expenses increased by 500 billion won (4.5%) to 12 trillion won, and non-operating income decreased by 600 billion won (61.3%) to 4 trillion won. Corporate tax recorded 3.3 trillion won, down 300 billion won (7.8%).

The Financial Supervisory Service stated, “Despite domestic and international economic shocks, we plan to encourage banks to expand their loss absorption capacity so that they can maintain soundness and faithfully perform their primary function of supplying funds,” adding, “We will continuously monitor banks’ loan loss provision details quarterly and guide capital expansion for banks with weak capital ratios.”

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