South Korean banks’ earnings are likely to fall 11 percent next year from this year as the cooling economic growth and slowing loan expansion will undercut their bottom lines, data showed Sunday.

The combined net income of four major banking groups and two lenders are likely to reach 11.5 trillion won ($10.2 billion) for next year, down from 12.9 trillion won projected for this year, according to an estimate made by financial information provider FnGuide.

Korean banks are expected to post stellar full-year earnings this year, backed by one-time gains from unloading stakes in Hyundai Engineering & Construction and a widened net interest margin, a key gauge of profitability.

But in what could be seen as an indication that their earnings growth is slowing, local banks posted less-than-expected earnings for the third quarter of this year, mainly because there was no one-off profit and the financial watchdog’s move to curb household debt caused their lending margins to fall.

Experts said that the slowed growth outlook for 2012 bank earnings came as the deepening eurozone debt crisis and gloomier outlook for the global economy are likely to hurt their bottom lines.

The slowing economic growth usually makes it difficult for banks to increase lending and the slim chance of a rate hike by the Bank of Korea will likely curtail banks’ incentives to hike lending rates.

“Local banks’ loan growth is likely to reach 6 percent on-year in 2012 from a 7 percent on-year growth tallied this year,” said Suh Jeong-ho, a research fellow at the Korea Institute of Finance.

The government is seeking to curb growing household debt as local home’s high indebtedness is feared to constrain consumer spending, hurting the economic growth.

The financial regulator has advised local banks to keep their on-month household loan growth at 0.6 percent.

According to the statistics agency, Korean households had an average of 52.05 million won in debt as of March of this year, up 12.7 percent from the previous year as their debt grew faster than their assets.

Analysts said that local banks’ non-interest income is also likely to decrease as they announced plans to cut commissions for the use of automatic teller machines and other services. 

(Yonhap News)