RPT-PREVIEW-Korea bank, broker earnings seen mixed on debt woes

(This is a repeat of an earlier story ahead of KB Financial's earnings announcement)

* What: July-Sept results of Korea banks, Samsung Securities

* When: KB Financial on Oct 30, Samsung Sec in early Nov

* One-off gains to lift KB Financial, outlook murky

By Kim Yeon-hee

SEOUL, Oct 27 (Reuters) - Mounting loan delinquencies, higher credit costs and weaker interest margins are expected to hurt third-quarter earnings at South Korean banks, which are facing a bleak outlook as economic growth slows.

Banks will remain under pressure from tight funding markets and contracting margins, a weakening won KRW= and the slowing economy, although a series of government liquidity-support measures may provide them a short-term boost.

South Korea's central bank on Monday delivered its biggest ever interest rate cut and promised other measures to calm the panic that has been driving down financial markets.

Banks in South Korea, with their large short-term foreign borrowing, have looked especially vulnerable to the global credit crunch in their struggle to access funds along with the threat that rapidly slowing growth at home could push many of their corporate customers into bankruptcy.

KB Financial (105560.KS), which runs top South Korean bank Kookmin, will likely post a solid quarterly profit thanks to one-off proceeds from a stake sale, despite rising costs for sour loans and softening lending margins. (See table below for earnings estimates)

But securities houses, led by Samsung Securities (016360.KS), South Korea's most valuable brokerage, are facing steep earnings declines as a 50-percent slide in local stock markets this year and dwindling stock turnover has slashed their commission and fee incomes.

The rapid pace of the economic slowdown, with South Korea's third-quarter growth hitting a 4-year low, and tumbling stock markets have been damaging asset quality at financial services firms.

Loan delinquencies and defaults are expected to pile up from small- and medium-sized enterprises (SMEs) and builders, to which domestic banks have raised their exposure since 2004.

"It is premature to talk of a recovery in the banking sector," said Park Jeong-hyun, a Hanwha Securities analyst.

"Government steps are mostly about increasing liquidity so that banks can lend more to small- and medium-sized companies.

But the more they lend to SMEs, the more bad loans they will end up with, with earnings hurt."

KB Financial, the country's No.3 financial holding firm, is forecast to post a 706.9 billion won ($491.6 million) net profit for the quarter ended September, according to Reuters poll of 6 analysts.

No comparison figures are available for KB because it was launched just last month. Analysts expect the group to have earned about 170 billion won from the disposal of a 14 percent stake in Indonesia's BII (BNII.JK) to Maybank (MBBM.KL).

KB's net interest margin, a key gauge of banking profitability, probably declined up to 10 percent in the September quarter from three months before, analysts say. The group had to raise borrowing even at higher costs to buy back shares from the market and shareholders opposing its conversion into a holding firm during the third quarter.

In mid-October, UBS chopped its 2009-2010 earnings forecasts for most South Korean banks by 20-30 percent, factoring in higher provisioning charges against future loan losses.

For the whole of 2008, South Korean banking groups, including Shinhan Financial, are estimated to report a drop in earnings.

Corporate loans, including lending to small- and medium-sized enterprises (SME), have spiked up 47 percent at South Korean listed banks since 2004, UBS said in a note.

Between January and September, bank SME lending had expanded 12.6 percent to 416.7 trillion won, according to the regulatory Financial Supervisory Service (FSS).

LOAN DELINQUENCY

The Bank of Korea's record rate cut and drastic liquidity support measures are expected to help domestic banks roll over maturing local debt, worth a combined 25 trillion won for the current quarter, analysts say.

But banks are calling for more action from the government, such as a state guarantee on deposit payments like Europe and Australia, and easier rules over liquidity ratios for the won currency, on top of the pledged state guarantee on foreign debt.

South Korean banks are among the top Asian offshore bond issuers as they have been reliant on wholesale funding instruments to finance asset expansion, so they are more vulnerable to the global market turmoil than other Asian peers.

Delinquencies against banks' won-denominated lending to SMEs climbed to a seasonally adjusted 1.61 percent at end-September from 1.32 percent three months earlier, FSS data showed.

For the brokerage sector, analysts say tax breaks on long-term investment funds, announced this month, are unlikely to attract fresh money into equities as retail investors have joined stock sell-offs fanned by foreign investors earlier this year.

Average stock turnover slumped by about a quarter in the July-September period from a year ago. -------------------------------------------------------------- COMPANY PROFIT % CHANGE DATE

(average in billion won) KB Financial 706.9 N/A Oct 30 Shinhan (055550.KS) 637.5 22 Oct 31 Woori (053000.KS) 481.9 49 early Nov Hana (086790.KS) 291.3 - 27 Oct 31 Samsung Securities 73.2 - 23 early Nov ($1=1437.9 Won) (Editing by Jonathan Hopfner & Kim Coghill)