South Korea's top banks brace for lower profits in 2012

This year won’t be a happy one for the bottom line of South Korea’s major banks.

Analysts expect net profits for South Korea's four major banks to drop in 2012 amid external uncertainties and tighter government regulations.

The combined net income of the country's four major banking groups are forecast to fall 6.62% year-on-year to US$7.74 billion, according to 20 analysts consulted by Seoul-based financial information provider FnGuide.

Top bank Woori Finance is likely to post the biggest loss, with net profit tumbling 11.41%. KB Financial is expected to suffer a 7.87% year-on-year drop while profits at Shinhan Financial Group Co. should be cut by 5.07%. Hana Financial Group profit is forecast to slip 0.12%.

The weaker bottom line projection comes as banks prepare to face a set of downside risk factors.

"Loan growth will cool amid concerns over slowing economic growth, household debt and efforts to lower debt-to-deposit ratio," said Kim Jae-woo, an analyst at Samsung Securities Co. He said recent moves to cut bank service fees are also likely to eat into their profit.

Hyundai Securities Co. analyst Koo Kyoung-hoe also projected a weaker net profit for banks, citing a rise in loan-loss reserves and an absence of one-off profits.

Other analysts, however, said these institutions are expected to successfully overcome this onslaught of negative factors.

"Banks are likely to see their profits rise for the second straight year and risks are projected to be not larger than expected," said Kim In, an analyst of Eugene Investment & Securities Co. Kim said local banks have "differentiated" fundamentals and solid asset quality compared to their global counterparts.

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