South Korean banks saw their combined net profit from overseas operations jump 32.1 percent in the first six months of the year from a year earlier due mainly to a drop in bad debt expenses and a rise in interest income, the financial watchdog said Sunday.

Earnings by 156 overseas units and branches of local lenders stood at US$373.4 million in the January-June period, compared with

$282.7 million the previous year, according to the Financial Supervisory Service (FSS).

The overseas income accounted for 10.2 percent of the banks' total profit during the six-month period, the FSS added.

It said the strong bottom line came as their loan loss reserves fell 7.5 percent on-year to $115.2 million from $124.5 million.

Increased interest earnings also contributed to the net profit jump, rising 21.1 percent to $713.5 million from $589.2 million over the cited period.

Their net interest margin, a gauge of profitability, dropped 0.07 percentage point to 1.71 percent as of end-June from 1.78 percent six months earlier.

The banks' total assets amounted to $85.95 billion, up 10.4 percent from $77.84 billion tallied in the end of 2013.  The overseas assets accounted for 4.5 percent of the total assets as of end-June.

Local banks had 64 branches, 42 subsidiaries and 50 offices in 34 countries at the end of June.

Despite the rise in profits and assets, the FSS said that local lenders have yet to make significant headway in localizing their overseas operations and drawing in capital.

The 80 bank branches and offices checked in the first half received an average "second tier" rating, the FSS said. Of the banks checked, Woori Bank and Korea Exchange Bank made some progress compared to the past in attracting and utilizing capital derived from where they operate, it said.

"South Korean lenders need to build up their global capabilities and become more localized in the medium and short haul," the FSS argued. (Yonhap)