The four major banks (KB Kookmin, Shinhan, Hana, Woori) generated over 34 trillion won in interest income last year. KB Kookmin Bank alone earned more than 10 trillion won from interest. The unprecedented profits were achieved despite a drop in net interest margin (NIM) due to a surge in loan demand last year, and banks are expected to face controversies over interest this year as well.
According to the banking sector on the 8th, the four major banks' interest income totaled 34.36 trillion won last year, an increase of 2.1% from 33.62 trillion won the previous year. Boosted by the rise in interest income, the net profit of these banks reached 13.34 trillion won, an increase of 8.38% from 12.31 trillion won the previous year. This is the highest level ever.
In terms of interest income by individual banks, KB Kookmin Bank led with 10.22 trillion won, followed by Shinhan Bank with 8.83 trillion won, Hana Bank with 7.73 trillion won, and Woori Bank with 7.56 trillion won. In terms of year-over-year growth rates, Shinhan Bank saw the highest increase at 5.2%, followed by KB Kookmin Bank at 3.6% and Woori Bank at 1.7%. Hana Bank experienced a decrease of 2.26%.
The significant growth in banks' interest income despite falling interest rates was primarily due to a sharp increase in loan assets last year. The increase in household loans for Shinhan Bank, KB Kookmin Bank, and Hana Bank exceeded their targets by 836.3 billion won (27.4%), 136.8 billion won (4.1%), and 1.6886 trillion won (60.6%), respectively. Woori Bank surpassed its target by 1.3375 trillion won, achieving 1.5584 trillion won, which is more than seven times its target.
For household loans and corporate loans by bank, KB Kookmin Bank expanded by 6.2% and 6.6%, respectively, while Shinhan Bank increased by 7.6% and 12.5%. Hana Bank saw increases of 5.9% and 2.6%, and Woori Bank expanded by 5.9% and 9.0%.
Financial authorities ordered that last year's household loan growth rate be managed within the nominal gross domestic product (GDP) growth rate. This year's projected nominal GDP growth rate is 3.8%, and considering this, the growth rate for household loans at commercial banks is expected to significantly expand this year as well. Household loans are a highly profitable area among loans extended by banks.
Last year, although the drop in the benchmark interest rate reduced the net interest margin (NIM), the expansion of loans led to record-high interest income. NIM is an indicator that reflects the profit remaining after subtracting the cost of funds, such as deposits, from the interest income earned from loans, and it is one of the key indicators for evaluating a bank's profitability.
The expansion of interest income despite the falling NIM indicates that the increase in overall loan assets, along with reduced funding costs, reflects the effective management of profitability by banks. Among the major commercial banks, KB Kookmin's NIM dropped by 0.05 percentage points to 1.78%, Shinhan Bank's NIM fell by 0.04 percentage points to 1.58%. Woori Bank and Hana Bank both dropped by 0.12 percentage points to 1.44% and 1.47%, respectively.
As banks announced record-high net profits last year, they are likely to face criticism for enriching themselves through interest income. When the banking sector achieved record-high interest income in 2023, there were expectations that "since the interest rate increase cycle is virtually over, the atmosphere will change in 2024," but banks have maintained larger spreads as they have not reduced additional charges under the pretext of managing household loans.
According to the Banking Association, as of December last year, the average spread between new lending and deposit rates at the four major banks was 1.46 percentage points, increasing for four consecutive months. The average interest rate for deposits with a 12-month maturity at the five major banks had dropped to about 2.7% based on the basic interest rate, while lending rates have remained stagnant.
Kim Byung-hwan, Chair of the Financial Services Commission, also criticized the banking sector on the 22nd of last month, saying, "Though the benchmark interest rate was reduced twice last year, the speed and extent of reductions in additional charges have not been adequately reflected," adding that he believes it is time for banks to reflect the decrease in the benchmark interest rate for the new year.