Moody's: Korean banks profits for FY2014 better than expected; some restraints for FY2015

Moody's Investors Service says that Korea's banks posted robust profit results for FY2014, but the outlook for net interest margins (NIM) and asset quality is restrained for FY2015.

"Net profit -- which rose 60.4% year on year -- for the fiscal year ended 31 December 2014 was better than we had expected, driven by a 24.9% fall in provisions and impairment losses, and the absence of the one-time non-operating losses recorded in FY2013," says Hyun Hee Park, a Moody's Assistant Vice President and Analyst.

"However, NIM will narrow further in the first quarter of FY2015 to reflect a policy rate cut in October 2014, while asset quality could be impacted by exposure to highly leveraged industries, such as shipping, shipbuilding, steel and oil refining," adds Park.

Park was speaking on the release of a new Moody's report, "Korean Banks: Improvement in Net Profits Is Better than Expectations".

The robust results for FY2014 were further boosted by provision expenses falling 24.9%, equating to credit costs of around 60 bps, the lowest level since the global financial crisis in 2008-09, and lower than Moody's expectations.

The report also says that the fall in NIM in FY2014 was in line with expectations. Specifically, the metric's 8-basis-point (bps) fall was driven by a 25-bps base rate cut in May 2014, and an additional 25-bps cut in October 2014, as well as intense competition in the industry.

Furthermore, Moody's expect s selling and administration costs in the banking system will rise this year -- before ultimately leading to lower costs -- as more banks start to streamline their workforces and branch networks.