South Korean banks’ net profit dropped sharply from a year earlier in the first three months of the year due to losses related to equity-linked securities (ELS) products tracking Chinese shares on Hong Kong’s H Index, preliminary data showed Friday.

The combined net profit of domestic banks, including savings banks and internet-only banks, came to 5.3 trillion won (US$3.94 billion) in the three months ended March, down 1.7 trillion won, or 24.1 percent, from the same period last year, according to the data from the Financial Supervisory Service.

The banks’ interest income reached 14.9 trillion won in the January-March period, up 200 billion won from a year earlier, but non-interest income dropped to 1.7 trillion won from 2.1 trillion won over the cited period.

“In particular, non-operating income significantly decreased by 2.7 trillion won on-year (to minus 2.2 trillion won) because of compensation related to HSCEI-linked ELS,” it said, adding the banks’ combined reserves set aside for such purposes amoun
ted to 1.8 trillion won in the first quarter alone.

The banks’ return-on-assets (ROA) stood at 0.57 percent for the first quarter, down 0.22 percentage point from a year earlier, with their return-on-equity also falling 3.26 percentage points on-year to 7.79 percent.

Their aggregate loan loss expenses, on the other hand, shrank 34.6 percent on-year to 1.1 trillion won in the January-March period.

The financial regulator attributed the on-year decline to a sharp rise in loan loss expenses in the first quarter of 2023 when the banks had expanded their loan loss provisions to brace for uncertainties.

Source: Yonhap News Agency