Shinhan Financial Group Co., South Korea’s largest financial company by market value, said first- quarter profit fell 11 percent after the company set aside more funds for bad loans as the economy slows.

Net income dropped to 826.3 billion won ($733 million) in the three months ended March 31 from 924.3 billion won a year earlier, the Seoul-based company said in an e-mailed statement today. That compares with the 766.1 billion won average of 20 analyst estimates compiled by Bloomberg.

Earnings at South Korean banks fell last quarter as loans became less profitable and lenders set aside more cash for soured debt, a regulatory report showed this week. Shinhan joins KB Financial Group Inc., owner of South Korea’s largest lender, in posting lower net income for the quarter.

“Shinhan and other banks are facing a burden of growing provisions and interest margin will likely remain flat for the rest of the year,” Yoo Sang Ho, an analyst at Seoul-based HI Investment & Securities Co., said before today’s report. “While there’s no risk of further deterioration in earnings, it’s hard to expect banks’ shares to outperform the overall market under current macro-economic conditions.”

Shares of Shinhan Financial climbed 0.3 percent to 39,600 won at the close of Seoul trading before the earnings were announced. The stock has slid 0.4 percent this year, compared with the benchmark Kospi index’s 9.5 percent gain.

Shinhan’s non-performing loans rose to 1.45 percent of total credit last quarter from 1.25 percent three months earlier, today’s statement showed. The bank set aside 257.1 billion won for potential loan losses, 45 percent more than a year earlier, led by increases at its credit card unit.

Interest income at Shinhan gained 2.9 percent last quarter from a year earlier to 1.76 trillion won. Net interest margin, a measure of profitability from lending, narrowed to 2.57 percent at the banking and credit card units from 2.72 percent a year earlier and 2.58 percent in the previous quarter. 

(Bloomberg)