Banks saw their net profit soar 60.4 percent in 2014 from a year ago, largely resulting from the reduced provision of bad loans, the financial authorities said Friday.

The combined net income of 18 banks operating here stood at 6.2 trillion won ($5.7 billion) in 2014, up 3.9 trillion won from a year earlier, the Financial Supervisory Service reported.

The financial watchdog said the lenders’ provision of bad loans dropped to 8.9 trillion won last year, down 24.9 percent on-year from 11.9 trillion, buoying the net profit.

Major reductions occurred in bad loans for shipbuilders and related manufacturing industries, ultimately writing off the delinquencies from struggling corporate borrowers, such as lawsuit-mired Moneual and solar energy firm Nexolon that recently filed for court protection.

Since the 1997-1998 Asian financial crisis, reducing the provision of bad loans has been at the core of the agenda for financial authorities and industries.

In 1997-1999, the combined bad debts of local lenders rose to 314.6 trillion won, hammering about 218.6 trillion won in losses over the three years, according to a last year report by the Korea Institute of Finance.

In 2008-2013, the lenders were confronted with a steep rise in combined bad loan expenses, which almost doubled to the 9 trillion won range from the 2005-2007 period.

Despite the fast elimination of bad debts, the lenders’ combined net interest margin sank to 1.79 percent, even lower than the 1.98 percent in 2009, shortly after the 2007-2008 global financial crisis.

The dwindling gap between the interest rates of savings deposits and loans appeared to be the driving factor, financial authorities said. Other costs included the additional staff management costs, such as 400 billion won in employee pay raises and 400 billion won in voluntary retiree severance payments, the FSS reported.

By Chung Joo-won (joowonc@heraldcorp.com)