"Record-Breaking Bank Earnings: 'A Feast from Interest Business'"

KB Financial, Last Year's Net Profit 4 Trillion
IBK Exceeds 2 Trillion, Record High
Loan Interest Rates Rise, Profitability Improves
Growing Complaints Over Expanded Loan-Deposit Rate Gap
Political Sphere Proposes Related Pledges and Bills

[Asia Economy Reporter Song Hwajeong] Banks recorded record-breaking earnings last year. KB Financial Group posted a net profit exceeding 4 trillion won, and IBK Industrial Bank also surpassed 2 trillion won, marking their highest-ever performance. However, there is a negative view that these banks' profit booms were mainly due to interest income, so the situation is not entirely positive.

According to KB Financial Group on the 9th, the total net profit for last year (based on controlling interest net income) was 4.4096 trillion won. This is 27.6% higher than the previous record of 3.4552 trillion won set in 2020. This record-high performance was driven by increased loans to small business owners and SMEs due to COVID-19, a booming asset market encouraging leveraged investments, and strong results from various affiliates. Interest income for the year rose 15.5% to 11.2296 trillion won, and fee income also increased by 22.5% to 3.6256 trillion won. The net profit for the fourth quarter was 637.2 billion won, a significant decrease from the previous quarter. This decline was due to one-time expenses such as future economic outlook provisions and COVID-19 related loan loss reserves, as well as seasonal factors. Excluding these, the recurring net profit for Q4 was about 1.1 trillion won, maintaining solid profitability despite some contraction in non-bank business.

IBK Industrial Bank also recorded its highest-ever net profit last year, surpassing 2 trillion won. The consolidated net profit including subsidiaries increased 56.7% year-on-year to 2.4259 trillion won, while the bank's standalone net profit reached 2.0241 trillion won. The outstanding SME loan balance rose by 17.1 trillion won (9.2%) from the end of the previous year to 203.9 trillion won, becoming the first in the financial sector to exceed 200 trillion won. The SME finance market share was 22.8%.

Amid increased household loans last year, loan regulations and base rate hikes pushed up lending rates, significantly improving profitability, which is cited as the main factor behind the record earnings. According to the Bank of Korea, the interest rate spread between deposits and loans at deposit banks as of the end of December last year was 2.21 percentage points, the largest gap in two years and four months since August 2019 (2.21 percentage points).

The widening interest rate spread has led to growing consumer dissatisfaction due to the increased interest burden from sharply rising loan rates. Considering this public sentiment, political circles have introduced related pledges and legislation. Yoon Seok-yeol, the People Power Party's presidential candidate, pledged to disclose the interest rate spread of commercial banks. The plan is to transparently disclose the spread to reduce borrowers' interest burdens and closely examine any collusion elements to protect financial consumers. Song Eon-seok, a People Power Party lawmaker, also introduced a 'Bank Act Amendment' mandating disclosure of the interest rate spread. The amendment requires regular disclosure of the spread according to presidential decree and allows recommendations for improvements by reviewing the rationality and appropriateness of rate calculations when the spread increases.

A Financial Services Commission official said, "During the COVID-19 recovery process, banks and the financial sector played a safety net role by extending maturities and repayments, so the expansion of the interest rate spread and increased bank profits should not be viewed negatively in that context." However, the official added, "From the consumer perspective, any unreasonable widening of the interest rate spread is being monitored by the Financial Supervisory Service and others."

Earlier in January, Jeong Eun-bo, head of the Financial Supervisory Service, said, "We are currently checking loan rates following the review of deposit rates in the banking sector," and added, "Based on individual bank inspections, we see a recent trend of narrowing interest rate spreads."

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