Banks That Performed Well Last Year... Operational Difficulties Expected This Year

[Asia Economy Reporter Oh Hyung-gil] Domestic banks achieved record-high performance last year, but managerial difficulties are expected this year.

Lee Daegi, Senior Research Fellow at the Korea Institute of Finance, forecasted in the report "Management Environment and Key Issues of the Banking Industry in 2020" on the 9th that "In 2020, domestic banks are expected to face managerial difficulties due to narrowing net interest margins, slowing growth of loan assets, rising compliance costs, and intensified competition."

Lee said, "Global political and economic uncertainties such as global trade disputes, escalating tensions in the Middle East, and the novel coronavirus infection will continue," adding, "With the continuation of low growth and low interest rate trends in the domestic economy, the risk of insolvency among vulnerable companies will increase, and banks' net interest margins will also shrink."

From the regulatory environment perspective, he said, "Household loans will be restrained due to real estate policies, leading to a slowdown in the growth of banks' loan assets," and "Financial consumer protection regulations related to the sale of high-risk financial products triggered by interest rate-linked derivatives sales will be strengthened, increasing cost burdens."

Regarding the competitive environment, he predicted that with the expansion of open banking, fintech companies entering the financial industry, and the launch of a third internet-only bank, competition will intensify not only among banks but also between banks and non-bank financial institutions, as well as between banks and technology companies.

To respond to this environment, Lee suggested focusing on profit growth rather than asset growth to improve the revenue structure. The proportion of non-interest income in total profits of domestic banks is around 12%, with most revenue relying on interest income.

He stated, "It is necessary to focus on improving risk-adjusted returns rather than operating profits," and added, "Furthermore, by establishing a sales culture based on consumer protection, banks should expand fee income and pursue a profitability-enhancing management strategy that gains non-interest income through improved services."

This content was produced with the assistance of AI translation services.