Korea Exchange Bank and other South Korean lenders posted a 97.4 percent fall in combined first-quarter profit after they wrote off loans for the country's No. 2 semiconductor-maker and prepared to do the same for SK Global Co.
Net income at Korea's 19 banks fell to a combined 46.5 billion won (US$38.8 million) after Korea Exchange Bank wrote down the value of stock in Hynix Semiconductor Inc acquired in a third bailout of the chipmaker, the Financial Supervisory Service said.
Hana Bank said its profit fell 49 percent as it increased provisioning for loans to SK Global, the trading unit of SK Group that said it hid debt and overstated earnings.
South Korean lenders' profits are being squeezed from two directions: they are still booking losses from lending to corporations that have proved unable to repay and are facing increasing risks from credit-card and household loans that they made to reduce their exposure to companies.
Creditors to SK Global set aside 658 billion won in the first quarter in case their loans are not repaid. Hynix lenders wrote down a total of 605 billion won after converting some of its debts into equity and then writing down the value of those shares, the government's financial watchdog said. At the same time banks prepared 1.9 trillion won in case household loans and credit card bills are not repaid.
The card defaults are the legacy of a 30 percent surge in household lending last year. Banks reported a net loss of 667 billion won from credit card loans and cash advances via cards in the first quarter, down from a profit of 206 billion in the same period a year earlier.