S&P: Korea's major banks to be challenged

Standard & Poor's said in a report that Korea's major banks enjoyed solid performance during the first six months of 2007, but face challenges as core profitability is being pressured by contracting interest margins due to intensifying competition.

The agency said that net profits and ROA for the industry were higher than the same six-month period a year earlier.

"Korea's major banks enjoyed strong performance due to a large one-time gain related to the LG Card Co. transaction," said S&P credit analyst Ikchul Kim.

"However, the industry faces challenges in an intensifying competitive environment that saw lower core profitability and contracting interest rate margins despite strong loan growth."

Overall loan growth was strong with the total amount of loans on the banks' books 16% higher as of June 30 than what was reported one year earlier, S&P said, adding that despite the 16% loan increase, net interest income rose only 7% as many banks achieved asset growth at the expense of interest margins to remain competitive in the intensifying mortgage and small to midsize enterprise lending markets.

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