THE INVESTOR

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March 29, 2024

Banks post record profits on household lending

PUBLISHED : July 24, 2017 - 16:57

UPDATED : July 24, 2017 - 17:03

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[THE INVESTOR] Korea’s leading banks last week posted record-high first half-year earnings, attributing the result to the economic recovery, cost savings, structural improvements and success in non-banking sectors.

But their positive performance was mostly due to an increase in interest rates, a factor weighing down on the nation’s households as debt levels continue to rise.

The rates for business loans, in contrast, were eased during the period, placing the issue as one of the tasks for the Moon Jae-in government in its gesture to narrow the socioeconomic gap.

According to data released last week, the country’s top four banking groups posted a combined 5.88 trillion won (US$5.27 billion) in net profit during the first six months of this year.

Shinhan Financial Group topped the list with a net profit of 1.89 trillion won, followed by rival KB Financial Group which performed 1.86 trillion won in first-half profit.

Both frontrunners set new six-month profit records since they set out as financial groups in 2001 and 2008 respectively.

 Woori Bank and Hana Financial Group also surpassed 1 trillion won in net profit.

The net profit of the top four players stood at 4.34 trillion, up 1.95 trillion won or 33.7 percentage points from the same period last year.

Their record-breaking business performance came while the nation’s total household debt reached nearly 1,400 trillion won as of the end of June, as well as a steady rise in lending interest rate.

All key banks have seen a visible rise in their net interest margins, a leading indicator of banking profitability. In the case of KB Kookmin Bank, the flagship unit of KB Financial, the corresponding figure rose by 0.11 percentage point from 1.61 percent in the fourth quarter last year to 1.72 percent to the second quarter this year.

Another noticeable tendency was that banks largely focused on low-risk lending.

According to industry data, the average lending rate for household loans as of the end of May was 3.47 percent, 0.02 percentage point higher than that of corporate loan interest rate.

This was the first time in seven years and two months that the household lending rates were higher that of corporate loans.

The deposit interest rates of the top four banks, however, continued to stay in the 1.1-1.4 percent range, with little signs of an increase, according to data by the Korea Federation of Banks.

It was under such circumstances that the Financial Supervisory Service chief Zhin Woong-seob summoned a meeting with bank leaders, strongly demanding that they increase their risk management capacities.

By Bae Hyun-jung/The Korea Herald (tellme@heraldcorp.com)

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