South Korean banks’ combined net profit for the first nine months this year reached a six-year high of 11.2 trillion won ($10.0 billion) thanks to a sharp decline in their loan-loss reserves amid recovery in the shipping and shipbuilding sectors and higher interest income from a housing market boom.

According to data released by the Financial Supervisory Service on Wednesday, the combined net profit of Korean commercial and state lenders more than doubled to 11.2 trillion won in the first nine months this year from 5.5 trillion won in the same period last year. This is the largest net profit for nine-month period since 2011 with 13 trillion won.

Both interest and non-interest income grew evenly in the cited period, with interest income up 2.1 trillion won on year to 27.6 trillion won and non-interest income up 1.4 trillion won to 6.2 trillion won.

Operating profit - gross profit (interest and non-interest income) minus SG&A expenses and loan loss provisions - increased 8.3 trillion won to 13.9 trillion won from a year earlier. Net profit - result after excluding non-operating income and tax expenses from operating profit - grew by 5.7 trillion won to 11.2 trillion won over the same period.

Their robust performance is largely driven by a sharp fall in allowance for bad debts, according to market analysts. Loan loss provisions shrank to 4.3 trillion won this year from 9.3 trillion won last year upon completion of restructuring in the country’s shipbuilding and shipping industries that had required the country’s lenders to keep a large sum of loan-loss reserves in the past few years. Higher interest revenue from an increase in household loans amid a debt-financed housing boom also helped to push up the bottom line.

Net interest margin (NIM), a key measure for a bank’s profitability, improved by 0.12 percentage points to 1.66 percent in the third quarter ended September. The banks’ average lending rate rose to 3.24 percent from 3.21 percent a year earlier while savings rate shrank to 1.18 percent from 1.27 percent in the cited period, expanding the difference between the two by 0.13 percentage points to 2.06 percent.

By Kim Tae-sung and Cho Jeehyun

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