Korean banks' 2019 profit to slow to $8.66b as home loans take hit

Residential property prices have been losing momentum.

South Korean bank earnings is tipped to slow to $8.66b (KRW9.8t) in 2019 from $10.42b (KRW11.8t) in 2018 as the dismal economic outlook takes its toll, according to Yonhap News Agency which cited a report from the Korea Institute of Finance (KIF). 

The protracted trade dispute will weigh in on banking profitability given the significant trade links South Korea has with both China and the US. A report by Schroders identifies the country as having the fourth largest economic exposure to US tariffs on Chinese goods via supply chains with over 1% of its GDP affected.

"Our 2019 outlook for Korean banks is stable, but risks for lenders are rising because of the weakening growth in the Korean economy," Sophia Lee, a Moody's Vice President and Senior Credit Officer said in a statement.

Banks will also take a hit on their profitable mortgage business as the country’s once-heated housing market loses steam with Fitch Ratings expecting home prices to fall 0.5% in 2019 from 2% growth in 2018.

Also read: APAC banks grapple with growing property risks: Fitch

Seoul, in particular, is set to witness declining home prices whilst other cities are set to witness flattish growth.

As a result of the dismal outlook, Fitch Ratings anticipates credit growth to fall to about 2% in 2019 and 2020 from 5.7% in 2018. KIF also expects a similar downtrend with household loans set to slow to 2.7% growth in 2019 from 4.81% in 2018 and corporate lending softening to 4.74% growth from 4.81%.