S. Korean banks to post record profits this year

South Korean lenders are expected to reap record profits this year on the back of a rise in loan interest rates and stronger-than-expected results in the third quarter, data showed Monday. The combined net profit of eight local financial services groups and banks, including top players Woori Finance Holdings Co. and KB Financial Group Inc., are expected to reach around 3.2 trillion won (US$2.7 billion) in the July-September period, according to brokerages' forecasts compiled by FnGuide, a financial information provider. Local banks have been posting solid profits this year. Their net profit totaled 4.5 trillion won and 5.5 trillion won in the first quarter and second quarter, respectively. Market watchers said if the trend continues into the fourth quarter, the total net profit of the country's 18 lenders is expected to reach almost 20 trillion won, compared with the previous high of 15 trillion won in 2007. The strong third-quarter outlook comes on a widening spread between deposits and loans. On the back of the government's efforts to clamp down on rising household debt, banks could jack up their interest rates on loans. The interest on household lending reached 5.58 percent in August, up 0.12 percentage point from July, according to the Bank of Korea. The rise compares with a 0.16 percentage point jump registered between January and July. Meanwhile, the interest rate on deposits trended lower. Central bank data show that the figure reached 3.76 percent in August, down 0.03 percentage point from the previous month. Market watchers said the combined interest profit of local lenders is likely to exceed a record 10 trillion won in the third quarter. "It is true that regulations on household loans deter lenders' expansions in terms of size. On the other hand, they actually help lenders enhance their profitability," a bank official said.