The size of curiosity revenue for home banks has been stagnant since 2023, based on findings. Because of this whereas whole lending has elevated, banks’ core income supply of curiosity revenue has not grown considerably. The 12 months 2023 was when former President Yoon Suk Yeol criticized home banks’ enterprise practices, saying, “Small enterprise house owners and the self-employed are performing as servants to banks as they wrestle to repay their loans.” Trade analysts counsel that whereas extreme curiosity enterprise by monetary establishments needs to be curbed, an applicable degree of curiosity revenue should be assured for soundness and extra lending.
A key authorities official identified Dec. 3, “Whereas inclusive finance is vital, banks should generate applicable income based on market ideas to satisfy their basic position of capital provide.”
In accordance with the Monetary Supervisory Service, banks’ curiosity revenue, which was 40.7 trillion received in 2019 earlier than the COVID-19 pandemic, surpassed 50 trillion received to achieve 55.9 trillion received in 2022, then recorded 59.2 trillion received in 2023 and 59.3 trillion received final 12 months. This 12 months, it reached 44.8 trillion received via the third quarter, anticipated to be just like or barely larger than final 12 months’s degree. Notably, whereas whole lending elevated by 6.47% in comparison with 2023 final 12 months, curiosity revenue solely grew by 0.16%.
Following former President Yoon’s criticism in 2023, banks considerably elevated rate of interest cuts and win-win finance reminiscent of grassroots finance. President Lee Jae Myung has additionally expressed views that “finance is simply too merciless” and “it looks as if a monetary class system has emerged,” resulting in widespread forecasts that home banks will discover it troublesome to extend curiosity revenue in the interim. Moreover, beginning subsequent 12 months, the training tax fee on income exceeding 1 trillion received will rise from 0.5% to 1%, and this can’t be handed on to lending charges. The extra training tax burden quantities to roughly 1.2 trillion received yearly. Kim Yong-jin, professor of enterprise administration at Sogang College, emphasised, “There may be essentially an inclination to disregard banks’ authentic position,” including, “Whereas there are calls to extend non-interest revenue, from banks’ perspective, this entails elevated danger.”
Given this case, the online curiosity margin (NIM), a consultant profitability indicator, is declining. Home banks’ NIM, which was 1.67% in 2018 earlier than COVID-19, fell via 1.56% in 2019 to 1.42% in 2020 in the course of the financial downturn. It subsequently hit the 1.6% degree for 2 consecutive years in 2022 and 2023, however recorded 1.57% final 12 months. The NIM via September this 12 months can also be 1.51%.
Notably, home banks’ NIM is barely half the extent in comparison with the USA. U.S. business banks common a NIM within the 3% vary. In accordance with the Federal Deposit Insurance coverage Company (FDIC), U.S. banks’ NIM within the fourth quarter final 12 months was 3.28%, exceeding the pre-COVID-19 degree of three.25%. A monetary business official emphasised, “If we simplify banks’ revenue construction, there are two elements: curiosity revenue from loans and non-interest revenue from numerous charges,” including, “Curiosity revenue is banks’ core income supply, and secure administration is feasible solely when curiosity revenue continues to extend steadily.”
Some interpret that the stagnation in curiosity revenue is as a result of home banks have reached a state of affairs the place they will not enhance lending. Because of this whereas they should uncover new lending sources together with know-how finance, their lack of ability to take action has led them to supply credit score to low-credit debtors at comparatively low charges. On this case, curiosity revenue inevitably stagnates. Kim Sang-bong, professor of economics at Hansung College, defined, “The slowdown in curiosity revenue development additionally signifies that banks have lent as a lot as they will lend,” including, “There are limits to protected loans alone like actual property. Even now, they need to transfer towards a construction that will increase funding to develop non-interest revenue.”
