South Korean banks marked the first quarterly loss last quarter in eight years due to increased loan-loss reserves and full-year earnings decreased by nearly 48 percent, the financial watchdog said on Tuesday.

Total losses of 18 commercial and state-run banks climbed to 300 billion won (US$215.4 million) in the fourth quarter of 2008, while the total profits a year earlier and three months earlier marked 1.9 trillion won (US$1.4 billion) and 1.5 trillion won (US$1.1 billion) respectively, according to a preliminary estimate by the Financial Supervisory Service (FSS).

It was the first quarterly loss since the fourth quarter of 2000 when their losses marked 4.6 trillion won, or US$3.3 billion. Combined with earnings for the rest of the quarters of 2008, the on-year total earnings dropped 47.4 percent to 7.9 trillion won, or US$5.7 billion.

Their net interest margin (NIM), a key barometer of profitability, also made 2.39 percent in the fourth quarter, down from 2.44 percent the previous year, according to the watchdog.

Local lenders set aside 1 trillion won, or US$0.7 billion, in loan-loss reserves in the fourth quarter to prepare for the shipbuilders and construction firms going through reconstruction, according to FSS. For the whole year, local banks'loan-loss reserves amounted to 9.9 trillion won, or US$7.1 billion up 121.3 percent from a year earlier.

"Hit by the global economic slump, bad loans increased in the fourth quarter. Given the fast cooling economy, local banks' earnings outlook for the current quarter seems to be gloomy," said Joo Jae-seong, assistant governor at the watchdog's banking service division.

Profit margins are expected to stay on a downward slope due to skyrocketing funding costs and record low interest rates, said Joo.

(Xinhua News Agency February 3, 2009)