[Banks Without Interest Play] Interest Income Earned This Year Alone Reaches 34 Trillion Won

Borrowers Struggling with Interest Burden of 11.6 Trillion Won in Q3 Alone

Reference image of a bank loan counter.

Kim Young-ho (41), who took out a loan of about 600 million KRW in 2019 to purchase an apartment worth around 1.5 billion KRW in the Gangbuk area of Seoul, is increasingly worried as he hears news of soaring loan interest rates. This is because there are forecasts that the variable-rate mortgage interest could soon exceed 5%.

Mr. Kim borrowed money from a commercial bank at an interest rate in the high 2% range per annum. Assuming the interest rate rises to 5%, his monthly interest burden would increase by more than 500,000 KRW, exceeding 6 million KRW annually. He lamented, "It’s like real demand borrowers helplessly bearing the interest burden and fattening the banks' pockets."

It has been revealed that domestic banks earned a total interest income of 34 trillion KRW by the third quarter of this year. This is due to a significant increase in loan demand despite the financial authorities' total loan volume regulations, as well as the rapid rise in bank loan interest rates triggered by base rate hikes. If the regulatory stance continues and the base rate is further increased, banks’ interest income will grow even larger, and the burden on borrowers who have gone ‘Yeongkkeul’ (borrowing to the limit) will intensify.

Bank Loan Counter Reference Image (Yonhap News)

According to the Financial Supervisory Service on the 17th, the net income recorded by 19 domestic banks up to the third quarter this year was 15.5 trillion KRW. This is a 50.5% increase compared to the same period last year and 3.4 trillion KRW more than last year’s total net income (12.1 trillion KRW).

The background to this performance lies in the sharp increase in interest income due to the growth of loan assets. Domestic banks earned 11.6 trillion KRW in interest income in the third quarter, which is 1.3 trillion KRW more than the third quarter of last year. The cumulative interest income up to the third quarter increased by 2.9 trillion KRW compared to last year’s third quarter, reaching 33.7 trillion KRW.

The net interest margin (NIM), which is the amount after deducting funding costs from interest income divided by assets, rose by 0.44 percentage points to 1.44% compared to the third quarter of last year, and the Financial Supervisory Service analyzed that the increase in interest-earning assets such as loan receivables continued. The spread between loan interest rates and deposit interest rates, known as the loan-deposit interest rate spread, recorded 1.80% in the third quarter following the second quarter, which is 0.4 percentage points higher than the third quarter of last year. Compared to the fourth quarter of last year, it increased by 0.8 percentage points.

Interest Rate Uptrend Expected to Continue

The upward trend in bank loan interest rates is expected to continue. Based on new transactions in October, the COFIX (Cost of Funds Index) was recorded at 1.29%, higher than the previous month’s 1.16%. This is the highest level since February last year (1.43%). COFIX serves as the benchmark for variable-rate mortgage loans in the banking sector. Commercial banks will reflect the October COFIX rate level in new variable-rate mortgage loans starting next month.

Furthermore, if the Bank of Korea raises the base rate on the 25th and the authorities maintain total loan volume regulations, banks are likely to take a more proactive approach to raising additional interest rates to ‘compensate’ for the reduced expansion of loan operations. Following mixed-rate mortgages, variable-rate mortgage interest rates are expected to exceed 5% per annum as early as this month.

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