Bloomberg News

KB Financial Profit Jumps Six-Fold as Loan Provisions Wane

October 28, 2011

(Updates with analyst comment in fourth paragraph.)

Oct. 28 (Bloomberg) -- KB Financial Group Inc., owner of South Korea’s largest bank, said third-quarter profit jumped more than six-fold as provisions for bad loans declined.

Net income rose to 579.1 billion won ($524 million) in the three months ended Sept. 30 from a revised 90.6 billion won a year earlier, when the company had to set aside provisions for soured construction project loans, the Seoul-based company said in a regulatory filing today.

KB set aside 288 billion won in credit loss provisions last quarter, dropping 55 percent from a year earlier, the company said today. Provision expenses for the nation’s banks will likely pick up next year as an economic slowdown limits further earnings improvement, said Yoo Sang Ho, an analyst at HI Investment & Securities Co.

“KB earnings look superb on year-on-year basis after hefty provision costs in the third quarter of last year,” he said. “Going forward through next year, it’ll be tough for lenders to increase earnings with possible economic downturn.”

Net interest margin, the core measure of profitability from lending, widened 45 basis points to 3.07 percent from a year earlier. The margin was unchanged from three months earlier. A basis point is 0.01 percentage point.

As the Bank of Korea puts further policy rate increases on hold, to buffer economic risks, banks’ loan-margins will likely shrink from the fourth quarter, Yoo said.

South Korea’s gross domestic product expanded at slower pace of 0.7 percent in the third quarter, compared with 0.9 percent three months earlier, the Bank of Korea said yesterday. It will be difficult to meet the central bank’s full-year growth forecast of 4.3 percent, Kim Young Bae, a central bank official, said yesterday.

--Editor: James Gunsalus

To contact the reporter on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net


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