South Korean banks are doing poorer overseas despite its aggressive expansion amid a slowdown in global economy and intensifying competition.

According to data released by the Financial Supervisory Service on Wednesday, combined net profit of offshore branches of the nation’s banks stood at $310 million in the first half ended June, 2016, sharply down 17.5 percent, or $70 million, from the same period of last year. The net profit of overseas branches accounted for 19.2 percent of total 1.9 trillion won ($1.7 billion) Korean banks net-earned in the first half.

Their combined net income made in Indonesia increased $96 million over the same period, but that of their operations in the U.K. fell $35.4 million, Vietnam $22.9 million and Japan $17.8 million. Poorer performance at Korean banks’ foreign branches stemmed from increased loan-loss provision, an expense set aside as an allowance for bad debts, according to data.

In particular, the Vietnamese operation of one Korean bank had to set aside additional provisions worth millions of dollars during the period, while Chinese operations of two Korean banks required additional provisions of more than $10 million amid growing concerns over the slowdown in the Chinese economy.

Local financial watchdog advises banks to be more vigilant against overseas risks in their expansion campaign by balancing out loan portfolios to retail and corporate customers.

In the first six months of this year, net interest margin (NIM) of foreign branches of Korean banks also decreased. NIM, the difference between the interest they get from borrowers and what they pay savers, is generally narrower when interest rates are low. NIM of Chinese operations of Korean banks fell to 1.44 percent in the first half of this year from 2.06 percent in 2014. That of Vietnamese operations dropped to 2.63 percent from 3.18 percent during the same period.

As of late June, total assets of foreign operations of Korean banks increased 0.6 percent, or $540 million, to $88.86 billion.

By Kim Gyu-sik

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]