Banks urged to strengthen profitability
Korean banks need to improve their profitability and develop new growth engines to survive competition and uncertainties, the chief of the Korea Federation of Banks (KFB) said Wednesday.
“Korean banks’ return of equity (ROE) ratios fell to 2.9 percent in 2013 from 15 percent in 2010. If the current low profitability continues, concerns are growing that some banks may go belly up,” KFB Chairman Ha Yung-ku said in a press conference.
ROE is a financial ratio that measures the return generated on shareholders’ equity.
The most urgent task for domestic banks is to increase profits and develop new growth markets such as financial technology, Ha said.
When it comes to net profit, Korean banks posted 4.9 trillion won for the whole year of 2013, sharply down from 5.0 trillion won in 2009. In the January-September period last year, their net profit was 4.8 trillion won due to lower interest income, according to the Korea Institute of Finance (KIF).
The banks are required to increase the ratio of their non-interest income that arises from commissions, investment gains from stocks and foreign-exchange products. They are still heavily dependent on interest income, said Brian Woojin Kim, senior research fellow at KIF.
Korean banks’ non-interest income ratio reached 86.8 percent as of the third quarter of 2013, up from 77 percent in 2007, KIF data showed. “Banks need to increase the non-interest income ratio to offset any declines in interest income. They also need to increase the per capita net profit, given that it plunged to 55 million won in 2013 from 127 million won in 2011,” Kim said.
Meanwhile, financial technology has emerged as a potential growth engine not only to existing financial institutions, but also to leading players in telecommunications and social media.
The chairman asked Korean banks to make an investment in financial technology in the coming years, while partnering with information-technology companies to absorb tech-savvy customers.
Global fintech investment more than tripled from $928 million in 2008 to $2.97 billion in 2013. Financial companies have also increased efforts to set up business ties with IT companies or acquire them, KIF said.
In late January, the Financial Services Commission will announce measures to help boost partnerships between banks and IT firms.