Seoul, Oct 29 (IANS): South Korean banks saw their earnings decline 4.1 percent in the third quarter compared with the previous quarter due to a reduction in interest income following the Bank of Korea (BOK)'s policy rate cut, data by the financial watchdog showed Monday.

The combined net income of 18 local lenders reached 2 trillion won ($1.83 billion) in the third quarter, down 4.1 percent from three months earlier, according to the Financial Supervisory Service (FSS).

From a year before, the profits were down 12.5 percent, reported Xinhua.

For the first nine months of this year, net income for the 18 domestic banks came to 7.5 trillion won in the third quarter, down 39.2 percent from the same period of last year.

The decline was attributed to a reduction in the interest rate-related income after the BOK's policy rate cut in July. The loan-to-deposit spread, a gauge of banks' profitability from lending, came in at 2.75 percent during the July-September period, down 23 bps from the same period of last year

Interest income at the 18 banks amounted to 9.5 trillion won in the third quarter, down 0.1 trillion won from the prior quarter, according to the FSS. The figure was down 0.4 trillion won from a year before.

Non-interest income of the banks was up 0.1 trillion won on-quarter to 0.9 trillion won in the third quarter. The reading expanded 0.4 trillion won from the previous year.

Provisions set aside for default reached 2.6 trillion won in the third quarter. The reading was unchanged compared with the previous year, but it was down 0.2 trillion won from the prior quarter.