Banks Hit Profit 'Jackpot' from Loan Growth...Will They Adjust Interest Rates?

[Asia Economy Reporter Park Sun-mi] The banking sector, which saw a sharp increase in net profit this year due to the growth in loan assets, is under significant pressure to take measures to alleviate the burden on ordinary citizens caused by soaring loan interest rates. Since it has been confirmed that the reduction or elimination of preferential loan interest rates in the banking sector is directly related to the rapid rise in interest rates, pressure to address this issue is expected to intensify going forward.

According to the banking sector on the 20th, the net profit of domestic banks in the third quarter was 4.6 trillion won, an increase of 1.1 trillion won compared to 3.5 trillion won in the third quarter of last year. The cumulative net profit from the first to the third quarter also rose by 50.5% compared to the same period last year, reaching 15.5 trillion won, which is 3.4 trillion won more than last year’s total net profit (12.1 trillion won).

The increase in interest income by 1.3 trillion won due to the growth in loan assets had a significant impact on the rise in net profit. The interest income of domestic banks in the third quarter was 11.6 trillion won. This was due to the net interest margin (NIM) rising by 0.04 percentage points year-on-year to 1.44%, as well as the continued increase in interest-earning assets such as loan receivables. The cumulative interest income up to the third quarter also increased by 2.9 trillion won compared to the third quarter of last year, reaching 33.7 trillion won.

On the other hand, 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.

Financial Authorities Review Bank Interest Rate Calculation System Amid Rising Loan Interest Rate Complaints

As controversy over the sharp rise in loan interest rates continues, financial authorities have begun to directly investigate the actual operation of loan and deposit interest rates. They plan to review the data submitted by banks and take necessary measures if any issues are found.

The financial authorities intend to examine how individual banks calculate loan and deposit interest rates by reviewing related data to identify any problems and assess whether the process is reasonable and transparent. Lee Chan-woo, Senior Deputy Governor of the Financial Supervisory Service, stated, "We will try to collect and analyze data in consultation with the banking sector as soon as possible and take necessary actions." At a briefing, he also urged banks to self-inspect their interest rate calculations to ensure compliance with voluntary regulatory standards, specifically the 'Model Code on Loan Interest Rates.'

With the sharp rise in loan interest rates putting the bank loan interest rate calculation system under scrutiny, banks, which had aligned with financial authorities’ efforts to strengthen household loan management, have found themselves in a difficult position. This is because it appears as if banks have reduced or eliminated preferential interest rates to profit from interest income.

Commercial banks maintain that the reduction or elimination of preferential interest rates was implemented as part of new loan management measures aligned with the financial authorities’ policy direction to curb the rapidly increasing household debt. In fact, banks began to actively lower preferential interest rates in the second half of this year, coinciding with measures to strengthen loan management such as limiting personal credit loan amounts to within annual income and reducing overdraft limits to around 50 million won.

A representative from Bank A said, "Banks have inevitably lowered preferential interest rates on some loans to control the increase in household loans in line with the authorities’ goal of managing total household loan volume. The rapid rise in market interest rates due to inflation concerns has made the increase in interest rates feel even more pronounced, but it is being perceived as if banks are raising rates to increase interest income."

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