The combined net profit of South Korean banks for the first half of this year dipped 17.5 percent on-year due to increased loan-loss provisions amid the coronavirus pandemic, data released by the Financial Supervisory Service showed Thursday. 

According to the financial watchdog, the combined net profit of local banks for the January-June period preliminarily came to 6.9 trillion won ($ 5.82 billion), down 1.5 trillion won from the same period last year.

The decline in net income came as the local lenders have increased their buffers in a preemptive move to cover potential loan losses from the coronavirus-driven economic fallout. Combined loan-loss expenses jumped 157 percent on-year to 3.3 trillion won for the first six months of this year, data showed. 

Interest income stood at 20.3 trillion won, down 38.9 billion won from the previous year, while the net interest margin -- a key barometer for measuring the profitability of banks -- fell 0.17 percentage point from a year ago to 1.44 percent, extending the downtrend for six consecutive quarters.
 
The combined non-interest income, however, gained some 8 percent from a year earlier to reach 3.6 trillion won thanks to a positive turnaround in securities-related profits. Securities income as well as foreign exchange derivatives profits rose by 0.3 trillion won, respectively in the given period.

The FSS said the Bank of Korea’s latest rate reduction to a historic low of 0.5 percent led to an improvement in profits from securities and bond issuances.

Meanwhile, the domestic banks’ return on assets stood at 0.49 percent, down 0.16 percentage point from 0.65 percent in the previous year, with the return on equity also sliding 0.93 percentage point to 1.65 percent.

By Choi Jae-hee (cjh@heraldcorp.com)