Foreign Banks Profited Big in Korea... 1.78 Trillion Won Net Profit Last Year

Foreign Bank Branches in Korea Record Net Profit of 1.78 Trillion KRW Last Year
Overall Profit Rises Despite Decline in Interest Income, Driven by Increased Derivatives Gains

Foreign banks operating in South Korea recorded a net profit of 1.78 trillion KRW last year.

According to the "2024 Foreign Bank Domestic Branches Operating Performance (Preliminary)" released by the Financial Supervisory Service (FSS) on the 27th, the total net profit of 32 foreign bank domestic branches (excluding UBS) last year was 1.7801 trillion KRW, an increase of 224.1 billion KRW (14.4%) compared to the previous year.

Last year, interest income of foreign banks decreased due to rising overseas funding costs, but non-interest income related to foreign exchange and derivatives expanded, resulting in an overall increase in net profit. However, UBS was excluded from this analysis due to a large loss of 453.6 billion KRW in 2023 caused by downsizing operations following the deterioration of its headquarters.

By item, last year’s interest income of foreign banks totaled 958.8 billion KRW, down 272.8 billion KRW (22.2%) from the previous year. The cause was the decline in net interest margin (NIM) as the high level of foreign currency funding rates continued due to the high dollar interest rate trend, while the Korean won operating rates such as government bonds remained low.

Securities income also decreased significantly to 427.9 billion KRW, down 603.6 billion KRW (58.5%) from the previous year. This was due to a reduced overall decline in government bond yields at the end of the year, which led to a decrease in securities trading and valuation gains.

On the other hand, foreign exchange and derivatives income rose sharply to 2.2329 trillion KRW, an increase of 1.2139 trillion KRW (119.1%) compared to the previous year. Although foreign exchange losses expanded due to the rise in exchange rates (-6.2338 trillion KRW), larger gains from derivatives (+8.4667 trillion KRW) led to a significant overall increase in net profit.

The FSS explained that the KRW-USD exchange rate at the end of last year was 1,470 KRW, a significant rise from 1,289.4 KRW at the end of 2023, which contributed to the derivatives gains. An FSS official said, "Foreign bank branches generally borrow US dollars from their headquarters and convert and operate them into Korean won through FX swaps and currency swaps, then repay in US dollars. Therefore, when the exchange rate rises, the foreign exchange segment incurs losses, while the derivatives segment generates gains."

Additionally, selling and administrative expenses amounted to 1.1002 trillion KRW, up 96.4 billion KRW (9.6%) from the previous year, while provisions decreased by 26.7 billion KRW (43.5%) to 34.7 billion KRW. An FSS official stated, "We will continuously monitor changes in foreign bank branches’ business strategies, funding and operations, and liquidity, and during inspections, we will focus on risks according to each bank’s business model."