Reasons for the Decrease in Net Profit of Foreign Bank Branches in Korea Last Year

[Asia Economy Reporter Song Hwajeong] Although domestic banks recorded the highest-ever net profits last year, the net profits of foreign bank branches in Korea (oeun jijeom) decreased. This was due to increased losses related to securities despite the rise in interest income.

According to the Financial Supervisory Service on the 28th, the net profit of 35 foreign bank branches last year was 1.1482 trillion KRW, a 4.5% (53.5 billion KRW) decrease compared to the previous year (1.2017 trillion KRW).

Interest income increased, but net profit decreased as non-interest income declined due to increased losses related to securities amid rising market interest rates.

The total interest income of all foreign bank branches last year was 1.8591 trillion KRW, a 19.5% (303.4 billion KRW) increase compared to the previous year (1.5557 trillion KRW). This was due to an increase in operating assets such as loan receivables and securities, as well as a rise in net interest margin (NIM). The average balance of interest-earning assets of foreign bank branches last year was 184.1 trillion KRW, up 9.7 trillion KRW from 174.4 trillion KRW the previous year. NIM rose by 0.14 percentage points from 0.80% to 0.94%.

Fee losses recorded 33.6 billion KRW, a 233.5% decrease compared to the previous year. Although fee income slightly increased, fee expenses such as transfer fees paid to headquarters and other branches also increased.

Foreign exchange and derivatives-related profits were 1.7094 trillion KRW, a 24.1% increase compared to the previous year (1.3997 trillion KRW). Foreign exchange-related profits decreased compared to the previous year due to foreign currency liabilities’ translation losses caused by exchange rate increases, but derivative-related profits increased due to gains from the evaluation and trading of forward foreign exchange purchase positions.

Losses related to securities were 1.0476 trillion KRW, a sharp increase of 378.6% compared to the previous year (-218.9 billion KRW). This was because securities holdings increased and market interest rates rose, leading to increased securities trading and valuation losses. Last year, securities trading losses were 291 billion KRW, and valuation losses were 756.6 billion KRW.