Non-interest revenue is regarded as a symbol of bank innovation. Banks need to expend more effort to earn non-interest revenue compared to interest revenue, which can easily be earned from the interest rate spread (the difference between deposit and loan interest rates). Over the past 10 years, the proportion of non-interest revenue among major commercial banks has not exceeded 10%. Experts pointed out that banks' focus on visible interest revenue without a mid-to-long-term roadmap has led to stagnation in non-interest revenue.
◇ Non-interest revenue 'sparked' an increase, but
According to the financial sector on the 17th, the accumulated non-interest revenue of five major commercial banks (KB Kookmin, Shinhan, Hana, Woori, NH Nonghyup) for the third quarter of this year is 3.2586 trillion won, which is a 17.4% increase from 2.7748 trillion won during the same period last year. During the same period, interest revenue increased by 1.6%. In particular, Woori Bank's non-interest revenue surged from 558 billion won in the third quarter of last year to 979 billion won this year, marking a 75% growth year-on-year.
However, assessments indicate that the increase in non-interest revenue is due more to the influence of rising bond yields as the upward trend in interest rates has slowed rather than diversification of the business portfolio. Typically, when market interest rates fall, bond prices rise, and with bond prices stabilizing, bond valuation gains have been reflected in the increase in non-interest revenue.
A source from a commercial bank noted, "While banks are expanding various trust and asset management services to increase non-interest revenue, the gains from increased bond valuation are difficult to consider as stemming from innovation or new businesses."
In the past, banks have consistently made innovations by altering fee structures for remittances, foreign exchange, bancassurance, and trusts to expand non-interest revenue. However, experts point out that if interest rates rise again or time passes, the expansion of non-interest revenue will regress.
◇ “Must proceed with a mid-to-long-term roadmap”
Bancassurance was once a product that led to the expansion of non-interest revenue for banks. Bancassurance is a non-interest revenue product where banks sell insurance products and receive commissions. After experiencing fluctuations in popularity, bancassurance saw a 'sparked' increase of 27.9% in profits at the four major commercial banks during the first half of this year compared to the same period last year. This surge occurred not because banks ramped up promotional efforts, but rather because the major banks suspended the sale of equity-linked securities (ELS), making bancassurance an attractive substitute. Experts express skepticism regarding its profitability for banks, stating that it is not likely to encourage sales in a high-interest environment.
Shim Yun-bo, principal researcher at Hana Financial Management Research Institute, explained, "In the sector for selling products to expand non-interest revenue, banks often lean more towards selling as agents rather than creating and providing products themselves. Many banks lack the capacity to manage production and sales effectively, and there is little will to develop expertise."
The situation for banks aiming for overseas expansion for the 20th year is also challenging. Although overseas assets have increased nearly tenfold compared to 20 years ago, recent overseas performance has taken a step back. As of the first half of this year, the overseas net profit of the four major commercial banks (KB Kookmin, Shinhan, Hana, Woori) was 337.9 billion won, a decrease of approximately 38% compared to the previous year. The number of overseas branches was 202 at the end of last year, which is a reduction compared to the 257 during the 1997 foreign exchange crisis.
Expansion of digital finance is also one of the prominent innovations aimed at strengthening banks' non-interest revenue. Banks have been increasing transactions through digital and mobile platforms while accelerating the adoption of artificial intelligence (AI) and collaboration with fintech corporations. To this end, they have actively established IT subsidiaries within their groups to support digital finance expansion. However, industry insiders explain that it is still challenging to generate revenue from these efforts, especially as the pace of digitalization among non-financial companies and platform firms intensifies competition.
Experts argue that if banks have concentrated on pursuing visible interest revenue, they should pay more attention to expanding non-interest revenue-generating businesses that can yield consistent profits regardless of interest rates or market conditions.
Researcher Shim stated, "From the bank's perspective, interest revenue is observable and has significant room for growth depending on circumstances, while non-interest revenue does not share that characteristic. This is why resources have been focused on interest revenue. Issues of incomplete sales and regulatory limitations also reflect a tendency to operate safely. "
Professor Seo Ji-yong from Sangmyung University noted, "Banks tend to become trendy industries, paying more attention to the directions consumers are interested in. They need to consistently put forth efforts to generate non-interest revenue with a roadmap. However, since bank management terms are often short, it is common not to consider long-term strategies, which shifts banks' focus away from these efforts."