Korea Exchange Bank, which is being taken over by HSBC Holdings Plc, reported third-quarter profit more than tripled after paying less taxes.
Net income rose to 194.4 billion won ($214 million) in the three months ended Sept. 30, from 51.8 billion won a year earlier, the Seoul-based bank said in a regulatory filing today. Profit was lower than the 246 billion won median forecast of eight estimates compiled by Bloomberg .
Korea Exchange Bank's recovering from the biggest profit decline in almost three years in the year earlier period, when it was forced to pay more taxes related to its credit-card unit. The bank is taking legal action to recover some of the 247.2 billion won in tax provisions that wiped 179.2 billion won from profit, it said today.
``Excluding the taxes, the figures look weak across the board, especially its profit margins,'' said Koo Kyung Hwe, an analyst at Hyundai Securities Co. in Seoul. Korea Exchange Bank's net interest margin, a measure of the profitability of the loans, dropped for a third quarter to 3.1 percent from 3.29 percent in the second quarter.
Korean banks are facing declining profit margins as competition increases in Asia's fourth-largest economy, Koo said. Funding costs are also rising as loan demand outstrips growth in deposits because more Koreans are investing in stocks. It will take some time for banks to see signs of improvement in their profit margins, he added.
The bank's won-denominated lending rose to 38 trillion won as of Sept. 30, from 34 trillion won at the end of last year.
HSBC agreed in September to buy 51 percent of Korea Exchange for about $6.3 billion from Lone Star Funds. Europe's biggest bank must clear regulatory hurdles before completing the purchase, which would give it access to 5.4 million customers and 350 branches in Asia's fourth-biggest economy.
Korea Exchange fell 300 won, or 2 percent, to 14,350 won at 10:15 a.m. in Seoul trading, the biggest decline since Oct. 23. The benchmark Kospi index fell 1.6 percent.