Korea's biggest banks suffer dwindling profitability

It's been dropping for 2 straight years.

The largest South Korean banking groups have grown their balance sheets in tandem with the steady expansion of the country's economy in the past few years, but their profitability has worsened amid low interest rates.

According to a research note from SNL Financial, the aggregate assets of the four Seoul-based companies, Shinhan Financial Group Co. Ltd., Hana Financial Group Inc., KB Financial Group Inc. and Woori Bank, increased 31.58% to 1.2024 quadrillion South Korean won as of Sept. 30, 2014, from 913.820 trillion won at the end of 2010.

Shinhan Financial is the largest among the four, with total assets of 335.20 trillion won as of Sept. 30, 2014. Each of the other three companies also holds more than 250 trillion won in total assets.

During the period, their aggregate net loans grew 32.39% to 770.03 trillion won, while deposits swelled 29.27% to 865.60 trillion won.

In boosting lending, Hana Financial led the pack, with the highest growth rate of 87.29% that dwarfs increases of 14% to 20% at the other three. The company's loan portfolio ballooned to 211.61 trillion won from 112.99 trillion won.

Here's more from SNL Financial:

However, the top four companies' total net income dropped for two consecutive years through 2013. Their combined profit declined to 4.78 trillion won at the end of 2013 from 9.19 trillion won two years earlier. Yet, the banking conglomerates' fortunes are on track to rebound in 2014, with their nine-month net income amounting to 4.76 trillion won already.

Shinhan Financial on Feb. 4 reported a 9.6% increase in 2014 net income. KB Financial and Woori Bank are scheduled to report their latest annual results on Feb. 5, followed by Hana Financial the next day.

In rewarding investors, South Korean companies have underperformed their regional peers in recent years. Among them, Shinhan Financial delivered the highest total return of 20% for the five years through Jan. 29, but that is still far short of a 46% gain in the SNL Asia-Pacific Bank Index during the same period.

Hana Financial investors earned only 5%, while KB Financial returned negative 22%. The total return on Woori Bank shares was negative 33% between Nov. 19, 2014, when its stock resumed trading following a merger with its parent company, and Jan. 29.

In addition to the four, Industrial Bank of Korea, KDB Financial Group Inc. and NongHyup Bank have total assets of more than 200 trillion won.

State-run KDB Financial stands out among South Korea's 10 largest companies with banking operations because of its weak financial metrics.

As of Sept. 30, 2014, it had the highest loan-to-deposit ratio of 277.23%, while its nonperforming loan ratio was the worst at 2.98%. The group is also the only company on the list with a negative ROAA for the 12 months ended Sept. 30, 2014.