South Korean banks' earnings are estimated to have declined 31 percent last year amid a long streak of low rates and higher loan-loss reserves, data showed Tuesday.

KB Financial Group and three other rivals are projected to have logged a combined net profit of 4.98 trillion won ($4.49 billion) in 2013, compared with 7.21 trillion won the previous year, according to estimates provided by FnGuide.

The 2013 data would mark the steepest fall since an 11 percent on-year decline in 2009 at the heel of a global financial crisis.

Analysts said that local banks' interest margin was squeezed as a long streak of low rates undercut the charges on interest income.

Local banks set aside higher loan-loss reserves due to liquidity crunch among conglomerates such as STX Group and Tong Yang Group.

Five affiliates of Tong Yang Group, South Korea's 38th-largest conglomerate, applied for court receivership in late September on liquidity shortages after the group failed to pay back maturing short-term debts. STX Group was put under a debt workout program early this year.

No. 2 banking group KB Financial Group likely posted a 21.4 percent on-year fall in net profit to 1.34 trillion won last year while its rival Shinhan Financial Group is estimated to have logged a net profit of 1.94 trillion won, down 16.4 percent from a year ago.

Industry watchers say banks' net profit is likely to improve this year as the local economy is on the recovery track.

The Korea Institute of Finance said that local banks' earnings are likely to increase around 30 percent this year from a year earlier. (Yonhap News)