[Bank President 2022 Outlook] Base Interest Rate to Rise 2-3 Times... "Loan Growth Rate of 4-5% Is No Problem"

Major Bank Presidents Announce Plans to Expand Access to Mid-Interest Rate Loans

[Asia Economy Reporter Park Sun-mi] Domestic bank CEOs are targeting the mid-interest rate market as their loan strategy for next year because mid- to low-credit borrowers are likely to be exempt from regulations amid strong household loan restrictions. Although the risk of household debt, which is at an all-time high, has increased due to the possibility of further base rate hikes next year, this also implies confidence that sufficient measures to strengthen soundness have been prepared to cope with default risks. This is why they expect high performance even if the household loan growth target for next year is aligned with the financial authorities' recommendation of 4-5%. As major bank CEOs have announced plans to expand mid-interest rate loans, the loan opportunities for mid- to low-credit borrowers are expected to increase significantly.

◆ Amid loan surge, 11 out of 12 predict two base rate hikes next year = On the 14th, Asia Economy surveyed 12 CEOs of domestic commercial, regional, internet-only, and foreign banks about their financial market outlook for next year. Eleven bank CEOs predicted that the base rate will be raised twice next year. One CEO expected three hikes.

With household debt reaching a risky level due to COVID-19, additional base rate hikes and the end of financial support such as principal and interest payment deferrals in the second half of next year will inevitably worsen loan soundness. As of last month, the outstanding household loans at banks reached 1,060.9 trillion KRW. The net increase this year alone was 72.1 trillion KRW.

Kwon Kwang-seok, CEO of Woori Bank, expressed concern that "after the normalization of principal and interest payment deferrals next year, loan soundness will deteriorate from the second half, especially for personal business loans." This is why bank CEOs expect increased soundness risks in the second half and have begun efforts to reduce these risks. Park Sung-ho, CEO of Hana Bank, said, "We are identifying and managing high-risk groups by checking the repayment ability of multiple debtors and borrowers with limited repayment capacity, who are greatly affected by factors such as interest rate hikes and real estate value declines."

Bank CEOs believe that if soundness is well managed, they can benefit from increased interest income during the base rate hike period. This is also why they think that even if the household loan growth target next year is limited to 4-5%, lower than this year, performance will not worsen. The common view is that expanding corporate finance and increasing loans to mid- to low-credit borrowers, who may be exempt from household loan volume management limits, will not pose problems in increasing interest income.

Jin Ok-dong, CEO of Shinhan Bank, said, "If we set the loan growth target at 4.5% next year, the growth capacity will be about 6 trillion KRW, but we can strengthen support for mid- to low-credit borrowers through rental and group loans focused on low-income real demanders, living stabilization funds, and new credit evaluation models such as ‘Rider Loans.’"

In particular, regional and internet banks are focusing their strategies on mid-interest rate loans for small business owners and mid- to low-credit borrowers, which is expected to lead to fierce competition with commercial banks seeking to expand their new areas. Choi Hong-young, CEO of BNK Kyongnam Bank, said, "To strengthen the role of regional finance, we will enhance retail finance for small business owners and provide balanced financial support to small and medium enterprises."

◆ Digital competition is the top priority and key to survival = Despite expectations of good performance next year, digital and MyData competition is commonly cited by banks as the top priority and threat in bank management.

Kwon Jun-hak, CEO of NH Nonghyup Bank, advised, "To provide various high-quality services to customers, we need not only to compete with big tech but also to increase cooperation with big tech companies that have excellent technology." Yoon Ho-young, CEO of Kakao Bank, said, "Digital transformation is accelerating in the domestic financial industry, and with the full-scale launch of MyData, competition for leadership among financial companies toward financial platforms will be fierce. As digital innovation is breaking down industry boundaries, it is important not to be confined to the industry you belong to but to secure digital accessibility."

The reason traditional banks are particularly focused on nurturing and recruiting digital talent is aligned with the banking industry's identification of digital transformation as the survival keyword for next year. Park Sung-ho, CEO of Hana Bank, said, "We are focusing on nurturing innovative talent for the digital era by developing ambidextrous talents with field and ICT capabilities."

On the other hand, internet banks, which have organized their workforce around digital and innovative talents from the start, are focusing on expanding their overall workforce. Hong Min-taek, CEO of Toss Bank, said, "Understanding technology and customer-centric user experience are key survival keywords for management next year. We are focusing on hiring experienced developers who can immediately jump into business, and there is no limit on the number." CEO Yoon Ho-young also said, "Since we are in a steep growth phase, we plan to hire more than triple-digit new employees next year as well."

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