[Click eStock] Bank Net Interest Margin Expected to Rise Up to 3bp in Q1 This Year

[Asia Economy Reporter Junho Hwang] As the Federal Open Market Committee (FOMC), which will decide whether to raise the U.S. benchmark interest rate, continues until the 16th, interest in bank stocks has increased. It is forecasted that the net interest margin (NIM) of domestic bank stocks will exceed an average of 3 basis points (bp) in the first quarter of this year. Hana Financial Investment projected on the 16th that the NIM of most domestic banks in February will maintain a slight increase compared to the previous month.

The increase in the first quarter of this year is expected to be about 3bp. In some banks, the seasonal negative effects due to mortgage loan adjustments and merchant fee reductions reflected in bank NIMs due to non-affiliation with card companies are observed. However, the core NIM is showing an upward trend across all banks. Regarding the loan-to-deposit ratio, KB Financial is the only bank exceeding 100%, while all others are below 100%, and the liquidity coverage ratio is gradually increasing, so even if the temporarily applied regulatory easing ends, the negative impact on NIM is expected to be minimal, according to Hana Financial Investment.

By bank, Industrial Bank of Korea and DGB Financial are expected to see the largest NIM increases, rising by 6bp and 5bp respectively. The Industrial Bank of Korea is significantly affected by the rise in the Koribor rate, and DGB Financial, which has a high proportion of variable-rate loans, is also heavily influenced by the rise in short-term interest rates under 12 months.

On the other hand, due to the base effect from one-time factors in the fourth quarter of this year, Hana Financial and JB Financial’s NIMs are expected to increase by only 1bp or decrease by 2bp, respectively, so the surface NIM may be somewhat sluggish. However, excluding one-time factors, all banks are expected to show an upward trend in NIM, and the annual average NIM this year could rise by more than 10bp.

A meaningful rebound is expected after the resolution of the Russia-Ukraine issue. Until mid-last month, bank stocks were soaring, but their prices turned weak after Russia’s invasion of Ukraine. Concerns about a global economic slowdown due to rising commodity prices such as oil, falling interest rates, and the weakening of the Korean won also had an impact.

Jungwook Choi, a researcher at Hana Financial Investment, said, "Recently, bank stocks have shown a slight rebound due to expectations of loan growth expansion following the president-elect’s LTV easing pledge and the rise in government bond yields just before the U.S. FOMC meeting. However, foreign investors, who play a leading role in supply and demand, are net selling domestic bank stocks," adding, "It is judged that a meaningful rebound will be difficult until the Ukraine issue that triggered the downturn is resolved."

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