Banks Expected to See 3bp Increase in Average Net Interest Margin in 1Q

The End of Loan-to-Deposit Ratio Regulation Easing Will Also Have Little Impact

[Asia Economy Reporter Minwoo Lee] Banks' average net interest margin (NIM) continues to show an upward trend. It is forecasted that the average annual NIM this year could rise by more than 10 basis points (bp; 1bp = 0.01%).

On the 19th, Hana Financial Investment predicted that the average bank NIM in the first quarter of this year would increase by 3bp. First, it estimated that the monthly NIM last month would maintain a slight increase compared to January. Some banks experienced a decline of about 1bp, but this was explained as a seasonal effect due to adjustments in mortgage loans and the fact that card companies are not spun off, so the merchant fee reduction effect is reflected in the banks' NIM. It was judged that the recurring NIM is continuing an upward trend across all banks.

Therefore, the average bank NIM in the first quarter is expected to rise by about 3bp. The end of the loan-to-deposit ratio regulation relaxation is also analyzed to have little impact. Last year, financial authorities temporarily relaxed the loan-to-deposit ratio regulation for banks to 105% until March this year as part of COVID-19 support policies. Jungwook Choi, a researcher at Hana Financial Investment, said, "Except for KB Financial Group, all banks are below 100% in loan-to-deposit ratio, and the liquidity coverage ratio is gradually increasing, so even if the regulation relaxation ends, the negative impact on NIM will not be significant," adding, "Considering this, the average annual bank NIM this year could rise by more than 10bp."

The banks expected to have the largest NIM increase are Industrial Bank of Korea and DGB Financial Group. They are expected to rise by 6bp and 5bp respectively in the first quarter alone. Researcher Choi explained, "Industrial Bank of Korea is greatly affected by the rise in the KORIBOR rate, and DGB Financial Group, which has a high proportion of variable-rate loans, is also significantly influenced by the rise in short-term interest rates under 12 months," adding, "On the other hand, due to a base effect from one-off factors in the fourth quarter of last year, Hana Financial Group is expected to increase by only 1bp, and JB Financial Group is expected to decrease by 2bp." However, excluding one-off factors, recurring NIM is seen to be on an upward trend for all banks.

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