Kookmin Bank reported a loss yesterday of W318.5 billion ($229 million) for the quarter ending December 2008, due to worsening bad loan charges. It was the first quarterly deficit posted by Korea's biggest lender, a unit of KB Financial Group, since the fourth quarter of 2004. The loss compares with a net profit of W580.1 billion for the same period in 2007.
Kookmin was forced to make additional provisions for losses on loans made to Korean manufacturers. KB Financial set aside W1.2 trillion against potential loan losses, up from W311 billion a year earlier, and wrote off W692.3 billion in bad loans during the quarter.
The Financial Supervisory Service said yesterday that the ratio of non-performing loans among Korean banks had risen to 1.11% at the end of December, which is a three-year high. Bad loans among the 18 domestic banks almost doubled to W14.3 billion compared to a year ago. Kookmin's bad loan ratio of 1.26% is the worst of them all.
KB Financial's earnings were just W43.9 billion, compared with W568 billion in the third quarter of 2008. KB Financial was set up in September as a holding company containing Kookmin and its eight affiliate companies. But Kookmin accounts for 86% of the group's W320 trillion worth of assets.
KB Financial shares fell 3.8% to W34,550 on the Korea Stock Exchange prior to the earnings announcement.
However, KB Financial Group said that despite the poor results of its banking unit, it had no imminent plans to raise new capital. Towards the end of last year it raised W4 trillion through share sales and subordinated bonds, and its tier-1 capital ratio at the end of December was 9.98%, compared with 9.14% three months earlier.
Last week, another leading Korean financial institution, Shinhan Financial Group, announced a $1.15 billion rights issue after reporting weaker than anticipated profits.
But, "on the basis of the current capital adequacy ratio, we think we have enough capital now", president of KB Financial Kim Jung-hoe was reported as saying during a conference call to analysts.
On Monday, Moody's Investors Service lowered the credit ratings of Kookmin and seven other major Korean banks -- including Hana, Shinhan and Woori -- to A2, the same as the sovereign rating, because of their reliance on the state for foreign currency financing. So far, the Bank of Korea has lent more than $16 billion to domestic banks and has offered to guarantee loans needed to roll over debt maturing during the first half of this year.
Separately, and as a further sign of the problems afflicting Korean banks, Woori said yesterday that it will not exercise its call option on $400 million of 5.75% lower tier-2 subordinated notes due 2014. In a statement, the bank said that "the decision was made due to current adverse market conditions and various economic considerations".