The latest quarterly earnings reports for large western banks followed the same script; improving economic conditions allowed them to boost profits by slashing loan-loss reserves.
It’s a different story in South Korea. In aggregate, the country’s 18 domestic banks saw their second-quarter profits plunge by more than 60%, as bad debt provisions more than doubled versus the previous three months. What’s more, in late June South Korea’s financial regulator announced that banks were launching “creditor-led corporate workout procedures” for 65 large, troubled corporate borrowers. The restructuring will require around US$2.5bn in extra loan-loss reserves. Even considering today’s gloomy news on second-quarter profits, for South Korea’s banks it might get worse before it gets better.