Chinese bank profits dip, while US, Japanese banks gain in Korea

Financial Supervisory Service (Herald DB)
Financial Supervisory Service (Herald DB)

Foreign banks in South Korea saw profits climb last year, posting a combined net income of nearly 1.8 trillion won ($1.23 billion), government data showed Thursday.

According to the Financial Supervisory Service, 32 foreign bank branches operating in Korea recorded a net profit of 1.78 trillion won in 2024, marking a 14.4 percent increase from the previous year. Operating profit rose 12.7 percent to 3.5 trillion won.

The earnings boost was largely fueled by non-interest revenue, particularly gains in foreign exchange and derivatives trading amid currency fluctuations. Revenue from these segments soared 119 percent on-year to 2.23 trillion won.

However, currency volatility also pushed up costs for interest income, with foreign banks’ net interest income falling 22.2 percent on-year to 958.8 billion won.

"Persistently high US interest rates drove up overseas funding costs, while yields on won-denominated assets, such as government bonds, declined, squeezing net interest margins," the FSS explained.

Elsewhere in non-interest revenue, securities-related gains tumbled 58.5 percent, or 603.6 billion won, to 427.9 billion won.

Despite various uncertainties, including a sharp rise in exchange rates and the declaration of martial law towards the end of 2024, foreign banks had remained largely unaffected, posting the year's highest quarterly earnings of 570 billion won in the fourth quarter.

Net profits for the first three quarters were 380 billion won, 470 billion won and 460 billion won, respectively.

The total assets of the 32 banks amounted to 409.1 trillion won, with a return on assets of 0.44 percent.

Boosted by increased currency volatility, US-based banks saw a significant improvement in their Korean earnings, with net profit surging 65 percent on-year to 421.1 billion won.

Japanese banks also experienced a 15.6 percent hike in net profit, reaching 401.2 billion won. The FSS attributed this growth to their successful expansion of the loan balance in Korea, which rose from 21.8 trillion won at the end of 2023 to 24 trillion won by the end of 2024, driven by their stable strategy of securing lending sources first before borrowing from headquarters.

Chinese banks, however, saw a decline in earnings, with net profit dropping 5.4 percent to 334.4 billion won. A 50 percent drop in interest rates played a significant role, as China-based banks raise funds in offshore markets, like Hong Kong, at relatively high interest rates, using those funds to invest in Chinese bank bonds, according to the FSS.

European banks, while holding the largest share of regional net profit at 494.5 billion won, saw a slight decline in profitability, dropping 2 percent on-year.

As of last year, nine European, five American, six Chinese and three Japanese bank branches were operating in Korea.


jwc@heraldcorp.com