[THE INVESTOR] The ongoing restructuring activities in the Korean shipbuilding and shipping industries have impacted local banks, pushing them into the red in the second quarter of this year, the country’s financial watchdog said on Thursday.

According to the data by the Financial Supervisory Service, the total net profit of 17 banks, including commercial banks, provincial banks and state-owned banks, posted a 400 billion won deficit in the April – June period, largely due to losses at the government-run banks that are major creditors of cash-strapped shipbuilders and shippers. 

The banking industry earned a 2.2 trillion won net profit in the same quarter last year and 2.3 trillion won in the first quarter of this year.

Although commercial and provincial banks obtained a combined 1.6 trillion won in net profit, the total figure for the entire industry recorded a deficit as the state-owned ones -- Korea Development Bank, Export-Import Bank of Korea and NH NongHyup Bank -- had about 2 trillion won in combined net losses.

“As those banks piled up large allowances for bad debt up to 5.2 trillion won, they logged huge deficits,” said an official at the FSS. “The banks were impacted by the restructuring of the shipping and shipbuilding industries.”

The total cost for soured bonds stood at 6.3 trillion won, up 53 percent from a year earlier, the data showed.

The banks’ returns on asset, a gauge for efficiency of asset management, dipped 0.5 percent to minus 0.08 percent compared to the second quarter in 2015. The returns on equity slid 5.55 percent to minus 1.07 percent during the same period.

However, the BIS capital adequacy ratio slightly improved thanks to the banks’ efforts to reduce risk-weighted assets including corporate credit exposure in the second quarter. The BIS ratio rose 0.41 percentage points to 14.39 percent as of June.

The delinquency rate of won-denominated loans at the local banks stood at 0.78 percent in July, up 0.07 percentage points from the previous month, also because of the corporate restructuring moves, the FSS said in another report.

While households’ delinquencies remained at a similar level of 0.32 percent during the period, the percentage of delinquent corporate loans soared 0.12 percentage points for the past one month to 1.16 percent. STX Offshore and Shipbuilding that field for a court receivership in May affected the ratio to rise, the FSS explained.

By Song Su-hyun/The Korea Herald (song@heraldcorp.com)