Banks, the Reason for High Dependence on Interest Income...Stagnant Fee Income

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Although banks are posting record-high profits due to massive interest income, their fee income growth has stagnated. The fee income of domestic banks remains low compared to major countries such as the United States and Japan, and it is expected to be difficult to anticipate an increase in the future.

According to IBK Investment & Securities on the 22nd, the growth rate of fee income for domestic banks was only 1.1% last year. In 2020, it was just 0.2%. Last year, the fee income of domestic banks accounted for about 10% of their interest income.

In the first half of this year, fee income showed negative growth. Interest income for domestic banks in the first half reached 26.2 trillion won, increasing by 4 trillion won compared to the same period last year, a rise of 18.8%. In contrast, fee income during the same period was 2.5 trillion won, down 8.0%.

Kim Eungap, a researcher at IBK Investment & Securities, explained, "While it is natural for fee income to increase as the economy grows and economic activities become more active, account-related fees have generally been reduced or waived."

The fee income of domestic banks was also significantly lower compared to major overseas countries. For remittance fees using a teller window, Korea (based on the four major banks) charges 500 to 600 won, whereas Japan (based on UFJ Bank) charges 6,453 to 8,604 won (660 to 880 yen), and the United States (based on Chase Bank) charges about 46,935 won (35 dollars). Withdrawal fees from other banks’ ATMs before closing are 700 won in Korea, 1,075 won (110 yen) in Japan, and 3,353 won (2.5 dollars) in the United States. For deposit fees paid when funds are deposited from an account under another person's name, there are no fees in Korea and Japan, but the United States imposes a fee of 20,115 won (15 dollars). Additionally, the United States charges a monthly account maintenance fee of 16,092 won (12 dollars).

Due to competition with fintech and big tech companies, it is unlikely that fees for domestic banks will rise significantly in the future. Researcher Kim said, "Financial policies and systems generally change for consumer benefits. Although domestic banks’ fees are low compared to overseas, it is more likely that fee waivers will increase rather than fee rates rising, and new services will either be exempt from fees from the start or have very low fee rates."

Since it is difficult to expect an increase in fee income, the importance of interest income in banks’ performance is expected to grow further. According to the Korea Institute of Finance, as of the end of last year, the interest income ratio of the seven major bank groups (KB, Shinhan, Hana, Woori, BNK, DGB, JB) reached 80.9%, while the fee income ratio was 16.8%. Kim Woojin, senior researcher at the Korea Institute of Finance, said, "Fee income is becoming more important because it can generate revenue without significantly increasing capital-raising burdens, especially as the Basel Committee on Banking Supervision (BIS) has tightened capital ratio regulations, making it possible to generate income without expanding risky assets. However, many customer fees are provided free of charge or below cost, so efforts to realize these fees may face customer resistance. Furthermore, competition within the banking industry is intensifying due to the emergence of internet-only banks and fintech companies, limiting the ability to raise fee rates."

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