Banks posted a record-low combined net interest margin in the latest quarterly report largely due to the continued low key interest rate, the Financial Supervisory Service revealed Tuesday.

In the July-September period, the 17 lenders operating in Korea reaped a record-low 1.56 percent in combined net interest margin, a gauge for profitability, from 1.58 percent in the previous quarter.

During the same period, interest income fell for the fourth consecutive quarter to 8.4 trillion won ($7.26 billion), down 5.1 percent year-on-year. This was part of the 15.7 percent drop in the lenders’ net profit.

The lenders’ shrinking margins were foreboded by the Bank of Korea’s decision last month to freeze the key interest rate at a record-low of 1.50 percent for the fourth consecutive month. The South Korean central bank had lowered the base rate four times since August of last year, citing weak domestic demand and sagging exports. 

The banks’ underperformance stood out in the noninterest business sector as well.

According to the FSS’ quarterly report, the lenders’ noninterest income shrank to 800 billion won, down 27.9 percent from 1.1 trillion won, on the falling won-dollar exchange rate.

The return on assets, a gauge for the efficiency of capital management, fell year-on-year to 0.27 percent from 0.36 percent. The return on equity, a gauge for management efficiency, also dipped on-year to 3.49 from 4.65 percent.

The BOK is slated to announce the November key interest rate on Thursday, with the bond market industries chipping in for a freeze.

According to the November bond market indicators report of the Korea Financial Investment Association, about 96.4 percent of the participants engaging in the local bond market expected the central bank to keep the base rate at the record-low 1.50 percent.

By Chung Joo-won (joowonc@heraldcorp.com)