Banks Continue Issuing New Capital Securities... Monthly Interest Payment Options Available

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[Asia Economy Reporter Song Hwajeong] As interest rates continue to rise, banks are expanding their capital through the issuance of hybrid capital securities amid increased funding costs. A method of paying interest monthly has also been introduced to attract investors.

According to the Financial Supervisory Service's electronic disclosure system on the 14th, Kookmin Bank resolved at its board meeting on the 11th to issue hybrid capital securities worth 300 billion KRW. This is Kookmin Bank's second issuance of hybrid capital securities since June. KB Financial Group has also issued hybrid capital securities four times this year.

The scale of issuance is also expanding ahead of issuance. Shinhan Bank, which will conduct subscription on the 17th, increased the issuance size from the initially planned 210 billion KRW to 310 billion KRW. Woori Bank expanded its issuance size from 270 billion KRW to 350 billion KRW ahead of last month's subscription.

To secure investors, a monthly interest payment method has been introduced. Previously, interest was paid every three months, but now it is paid monthly. Woori Financial Group, ahead of issuing hybrid capital securities worth 210 billion KRW on the 25th, corrected its disclosure on the 11th to state that from the issuance date until the principal repayment date, the annual interest (dividend) calculated by applying the bond rate will be divided and paid monthly as one-twelfth of the annual interest. Shinhan Bank also decided to pay interest on the hybrid capital securities issued this month on a monthly basis. Choi Seongjong, a researcher at NH Investment & Securities, said, "Banks' hybrid capital securities that pay interest monthly have the advantage of generating stable monthly cash flow," adding, "This appears to be a measure to secure investors amid increasing volatility in the bond market."

The reason why financial holding companies and banks, which have issued hybrid capital securities in record amounts this year, continue to issue them is that rising interest rates have reduced low-cost deposits and increased corporate loans, thereby increasing funding costs.

Last month, demand deposits including low-cost deposits such as Money Market Deposit Accounts (MMDA) at the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup Bank?decreased by 4.3386 trillion KRW from the previous month to 670.7737 trillion KRW. Time deposit balances increased by 30.6838 trillion KRW from the previous month to 760.5044 trillion KRW, and installment savings rose by 5.869 billion KRW to 39.3097 trillion KRW. When time deposits and installment savings, which have relatively higher interest rates than demand deposits, increase, banks' funding costs rise. Park Hyejin, a researcher at Daishin Securities, said, "Funds are being redistributed from low-cost deposits to high-cost deposits, accelerating the rise in banks' funding costs," adding, "With the base rate expected to rise to 3.5% by the end of the year, inflows into high-cost deposits are likely to continue."

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