Thursday, May 7, 2009

Korea Exchange Bank Posts Its First Loss Since 2003

Korea Exchange Bank, the lender Lone Star Funds is seeking to sell, reported an unexpected loss as loan profitability declined and retirement payments increased.

The deficit of 74.8 billion won ($59 million) for the three months ended March 31 compared with a profit of 267.4 billion won a year earlier, the Seoul-based bank said today in a regulatory filing. The median estimate of five analysts surveyed by Bloomberg was for a profit of 41.7 billion won.

Korea Exchange, which last posted a loss in the fourth quarter of 2003, and its local rivals are struggling to combat shrinking lending margins as the interest rates they charge on loans fall. The Bank of Korea has lowered the benchmark interest rate to a record 2 percent to keep the economy from sliding into its first recession in a decade.

“The lending margins could remain flat at best in the second quarter, weighing further on banks’ earnings,” said Kim Jae Woo, a banking analyst at Samsung Securities Co. in Seoul. “Even if the margins improve after that, I doubt they will recover to last year’s levels.”

Korea Exchange shares fell 1.5 percent to 8,320 won at 9:32 a.m. in Seoul, while the benchmark Kospi index rose 0.6 percent. The stock jumped to a six-month high yesterday after Edaily reported that Korea Development Bank is interested in buying the lender.

The bank’s net interest margin, a measure of profitability from lending, fell 64 basis points to 2.18 percent from three months earlier. It was 3.06 percent a year earlier. A basis point equals 0.01 percentage point.

Bad Loans

Earnings were also dragged lower by loan-loss provisions, which rose to 325 billion won from 80 billion won a year earlier. Non-performing assets as a percentage of total loans rose 38 basis points to 1.48 percent from three months earlier.

Korea Exchange spent 63 billion won on payments to employees leaving the company after accepting voluntary retirement from staff for the first time in five years.

Korea Exchange, the country’s sixth-biggest bank, remains for sale after HSBC Holdings Plc last year dropped a plan to buy a controlling 51 percent stake from Dallas-based Lone Star.

Min Euoo Sung, chief executive officer of state-run Korea Development, said yesterday his bank is open to acquisitions as it prepares to become a private lender, without naming a potential target.