Branches’ combined income slides 43 percent year-on-year


Foreign bank branches in South Korea saw their earnings plunge in the first half of this year, hurt by losses linked to the sharp rise in the value of the Korean won and interest rate fluctuations, the country’s top financial regulator said Tuesday.

The combined net income of foreign banks’ 37 local branches stood at 538.5 billion won ($512.4 million) in the first six months of this year, down 43.7 percent from a year earlier, the Financial Supervisory Service said.

“The appreciation of the Korean won and the gain in interest rates on the market resulted in extended losses in the foreign exchange-related derivate trades,” said an FSS official in charge of collecting data from foreign banks in Korea.

The combined loss from derivatives trading shrank to 42.6 billion won in the first half from a 103.7 billion won deficit a year earlier, as the borrowings denominated in foreign currencies offset the losses stemming from exchange rate fluctuations.

The Korean won against the greenback stood at 1,210.3 won at end-June last year, versus 1,167.6 won from six months earlier. The figure for a comparable period this year moved from 1,138.9 won to 1,078 won.

In securities investment, foreign banks swung to a loss of 26.2 billion won, compared to 346.4 billion won profit in the first half of last year. The decline stemmed from rising interest rates, which cut deeply into the valuation of securities. The rate on Korea’s three-year treasury bonds rose from 3.38 percent in December to 3.76 percent in June this year.

The FSS said it will beef up monitoring of investment banks operating in Korea as the steep drop in their net profits could lead to a major shift in marketing strategy.

By Yang Sung-jin (insight@heraldcorp.com)