Commission Profit 'Plummets' in Banking Sector... This Year, Survival Hinges on Wealth Management (WM)

Four Major Banks' Fee Income Last Year 3.6123 Trillion KRW... 13.0% Decrease

[Asia Economy Reporter Park Sun-mi] Major commercial banks are focusing on strengthening their Wealth Management (WM) capabilities this year. This comes as they face limitations in increasing interest income in the low-interest-rate era, coupled with a sharp decline in fee income?which had previously helped defend their performance?last year.

According to the financial sector on the 8th, the total fee income of the four major domestic banks last year was 3.6123 trillion won, shrinking 13.0% from 4.1647 trillion won the previous year. During this period, Hana Bank’s fee income dropped nearly 20.0% from 886.4 billion won to 711.3 billion won, and Shinhan Bank’s decreased about 15.8% to 987 billion won. Woori Bank also saw a 13.0% decline to 846 billion won, while KB Kookmin Bank’s fee income fell 5.8% to 1.068 trillion won.

Fee income accounts for the majority of banks’ non-interest income and mainly comes from bancassurance, fund sales, trusts, and credit card agency services. The significant decline in fee income last year was influenced by customers’ reluctance to subscribe to funds at banks following the private equity fund loss incident, making financial product sales difficult. The Financial Supervisory Service’s successive issuance of heavy sanctions to executives of failed private equity fund sellers further dampened the fund sales atmosphere within banks.

The KOSPI’s rise of over 30% last year also influenced the decline in fee income, as investors shifted from bank-sold financial products to direct stock investments. Moreover, financial authorities classified derivative-linked securities trusts (DLS) and equity-linked trusts (ELT)?representative products of specific money trusts in the banking sector?as high-risk products and imposed limits on total sales across all banks, making it difficult to increase trust assets and earn fee income.

With interest rates falling last year, banks faced limits on profits from net interest margins. Despite a significant increase in bank loan assets due to the COVID-19 pandemic, net interest margins (NIM) declined across all four major banks in the low-interest-rate era. Last year, the net profits of the four major banks decreased by 5?10% as there was no support from either interest or non-interest income sectors.

Limits on Increasing Interest Income Persist in Low-Interest-Rate Environment This Year
Need to Boost Fee Income...
Reasons for Strengthening WM Capabilities

With the low-interest-rate trend expected to continue this year, banks’ concerns about generating profits have deepened. Since it remains difficult to increase profits from net interest margins in the low-interest-rate era, banks are currently focusing on strengthening the capabilities of their WM divisions to find new avenues in the non-interest income sector. In particular, the full-scale advent of the MyData (personal credit information management) era, which enables non-face-to-face integrated asset management services, presents an opportunity for banks to increase non-interest income.

Shinhan Bank plans to make a decisive move in April by advancing its MY Asset service, combining WM and digital capabilities. Using scraping technology, customers can check asset information in real-time from a total of 87 institutions?including bank accounts, cards, securities, insurance, and pensions?and subscribe to desired products. Woori Bank, facing a significant reduction in WM revenue due to the private equity fund incident, is shifting away from WM sales focused on individual customers to strengthening ‘PCIB,’ which supports asset management and financing for corporate clients. PCIB stands for Private Banker (PB) services combined with Corporate Banking (CB) and Investment Banking (IB). The bank also formalized the ‘Value Group (VG)’ system, a collaborative framework that groups one real estate hub branch with 4 to 8 nearby branches, to enhance cooperation among branches.

KB Kookmin Bank is expanding WM complex branches where customers can handle all services in one place without visiting separate bank and securities offices. Additionally, the WM Planning Department has launched projects to innovate WM products and processes and discover new business opportunities. Hana Bank plans to upgrade its digital fund investment asset management service and launch it in the second half of the year.

Kim Woo-jin, Senior Research Fellow at the Korea Institute of Finance, advised, “For large domestic banks facing weakened profitability, strengthening WM capabilities?which have the effect of expanding new markets?is important to enhance competitiveness in the retail business. Efforts should be made to strengthen the linkage between SME finance and PB organizations and to recruit PB professionals.”

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