Bank Interest Income Growth Rate Expected to Fall to 1% Range in Second Half of Year

[Asia Economy Reporter Song Hwajeong] The growth rate of interest income for banks in the second half of the year is expected to fall to the 1% range compared to the previous quarter.

According to Hanwha Investment & Securities on the 10th, the interest income of the five major banks?KB Financial Group, Shinhan Financial Group, Hana Financial Group, Woori Financial Group, and Industrial Bank of Korea?has increased by an average of 3.7% quarter-on-quarter since Q4 2020. However, in the second half of this year, the growth rate is expected to decline to the 1% range due to a slowdown in asset yields and scale growth.

Kim Doha, a researcher at Hanwha Investment & Securities, explained, "We maintain a 'neutral' sector investment rating due to concerns that the consensus may turn downward amid a significant slowdown in the pace of spread expansion and an increase in credit risk in the second half."

The slowdown in bank stocks' earnings is expected to appear from Q2. Hanwha Investment & Securities forecasted that the Q2 earnings of six banks, including KakaoBank, will increase by 8% year-on-year, exceeding consensus by 3%. However, excluding gains from real estate sales, earnings are expected to fall short of consensus by 5%. Researcher Kim said, "Although net interest income growth remains solid, poor performance in securities gains and inevitable earnings decline in the securities sector across the industry, along with expected additional provisions by banks, are factors."

The net interest margin (NIM) of the six banks is expected to rise by 5 to 10 basis points (1bp = 0.01 percentage points) quarter-on-quarter. Asset growth is expected to slow. Household loans by general banks are expected to decrease by 1%, while corporate loans are expected to increase by 3%, resulting in a 1% increase in won-denominated loans. KakaoBank's won-denominated loans are estimated to increase by 3% due to eased restrictions on mortgage loans and expansion of mid-credit loans.

With credit risk expanding due to the sharp rise in market interest rates, additional provisions by banks to improve soundness are expected. Researcher Kim explained, "Assuming additional provisions at about 10% of each bank's allowance for loan losses balance, the quarterly loan loss expense ratio is expected to rise by 17 basis points year-on-year to an average of 0.36% for holding companies and Industrial Bank of Korea. KakaoBank is assumed to see a 19 basis point increase in the quarterly loan loss expense ratio due to new mid-credit loan issuance."

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