Banks make highest profits in Q1 on lending and deposit margins: The DONG-A ILBO

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The net profit of Korea’s top five financial holding companies topped $5 trillion for the first time in history. Net profit for KB, Shinhan, Hana and Woori Financial Holding increased 8-32% year-on-year for the first quarter, while NH saw only a slight drop in net profit. This performance is attributable to the increase in interest rates on loans higher than rates on deposits, while base interest rates have increased by 1 percentage point in the last four rounds since August of Last year.

It’s no secret that banks earn profits from lending and deposit spreads, but the recent scale of bank profits is unprecedented. This earnings growth came from a noticeable growth in the interest margin, as banks saw an increase in cash from money invested in real estate flowing back to the banks. Fixed deposits of six months or less at major banks grew 55% year-on-year, while margin on loans and deposits increased 0.3 percentage points in just two months. Financial companies were able to post interest profits due to ample liquidity and interest rates, not due to better sales performance.

Contrary to the performance of banks, households are suffering from the burden of interest rates. Overall, household lending hit 1.862 trillion won as more people take full loans, using the money to invest in stocks. A 1 percentage point increase in basis point interest results in an additional interest of 880,000 won for each household. It is miserly of banks to focus on margin profitability on loans and deposits when they performed best last year as people suffered from higher interest charges.

Banks are key institutions that provide liquidity to the national economy by performing payment, settlement and credit functions. The government grants exclusive commercial rights to banks because their role differs from other private companies, whose priorities are set on maximizing profits. Banks are expected to share the burden of higher interest rates, rather than profit from them, as 380,000 households risk defaulting. Banks should play a responsible role in this situation, taking seriously Moody’s warnings that Korea has one of the highest debt levels among developed countries. Banks should consider ways to disclose their margin structure on loans and deposits and find ways to help vulnerable households ease the borrowing burden.

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