Bank Trust Market Worth 500 Trillion Won... Competition for Customer Acquisition (Comprehensive)

Bank Trust Assets Reach KRW 509.7 Trillion as of End-August
Approximately 8% Growth Compared to One Year Ago
Banks See Opportunity to Expand Non-Interest Income Through Fees

[Asia Economy Reporter Park Sun-mi] Due to low interest rates and an aging population, competition among banks over the trust market, which has emerged as a future growth engine, is becoming increasingly fierce. Elderly individuals with substantial assets are entrusting their money to bank trusts, which serve as a means of wealth transfer such as inheritance and comprehensive asset management services for retirement preparation. Banks, facing a decline in net interest margin (NIM) due to the ultra-low interest rate environment and stringent government loan regulations, are eager to attract new customers by introducing differentiated products to expand non-interest income.

According to the financial sector on the 27th, the trust assets under management by banks reached 509.6996 trillion KRW as of the end of August, the latest available data. This represents approximately 8% growth compared to 472.1766 trillion KRW at the end of August last year. The scale of bank trusts surpassed 500 trillion KRW for the first time in April this year and has maintained around 510 trillion KRW for five consecutive months.

Customers Expect High Returns, Banks Aim to Expand Non-Interest Income

Trusts mean "entrusting with confidence," referring to a financial service where customers entrust stocks, bonds, deposits, real estate, etc., to financial companies such as banks or securities firms, which then manage, operate, and dispose of these assets. As a type of comprehensive asset management service, customers can expect higher returns than deposits safely in the ultra-low interest rate era, while banks can expand non-interest income through fees in an environment where increasing interest income is difficult.

Bank fee income is broadly divided into ▲trusts ▲banking-related services ▲credit card agency services ▲fund sales ▲bancassurance, among others. However, due to the Lime and Optimus private fund scandals, bank fund sales have sharply declined, forcing banks to increase fee income from other sectors. This is also why banks are competitively entering the trust business.

As the needs of customers and banks align, competition to increase trust assets under management in the banking sector is intensifying. Recently, there has been a trend of launching lifestyle-customized and close-contact trust products focusing on the growing elderly population.

IBK Industrial Bank of Korea launched the free installment trust product "IBK Anshim Sangjo Trust" on the same day. It is an installment trust product with flexible deposits, where the funeral service funds are held and managed by IBK and can be canceled at any time without early termination fees. KB Kookmin Bank has also been selling the comprehensive solution product "KB Nae Saengae (愛) Trust" since the 23rd, which provides one-stop solutions for asset management, daily life, and inheritance. This product was launched in response to social changes such as entering a super-aged society, low birth rates, and an increase in single-person households.

NH Nonghyup Bank is conducting a "Long-term Inactive Trust Account Recovery" campaign for four weeks until the 22nd of next month. The targeted long-term inactive trusts are trust accounts with no transactions for over five years since the trust maturity date or last transaction date. Customers with account balances between 50,000 KRW and less than 100,000 KRW will be notified by mail, and those with balances over 100,000 KRW will be contacted directly by phone.

Non-Face-to-Face Trust Services 'OK'

Recently, competition in non-face-to-face services has also heated up. Shinhan Bank has been offering a new non-face-to-face trust service using video calls since the 20th for 26 products including equity-linked trusts (ELT), index funds, and ETFs related to secondary batteries, bio, and healthcare sectors. The advantage is that customers can easily subscribe through the mobile banking application SOL without visiting a branch.

The service also offers a 0.2 percentage point lower fee compared to trust product fees for new subscriptions at branch counters, providing cost-saving benefits. Since Kookmin Bank first introduced a non-face-to-face trust service using video calls in May this year, Woori Bank, Hana Bank, and others are also preparing to launch non-face-to-face trust services within the year. The industry expects that as banks' non-face-to-face trust services become full-fledged, fee competition among banks for trust products will intensify further, as banks are likely to lower fees to attract early subscribers.

However, following the large-scale losses from overseas interest rate-linked derivative-linked funds (DLF) last year, financial authorities classified derivative-linked securities trusts (DLS) and ELTs, which are representative products of specific money trusts in banks, as high-risk products and imposed sales volume limits across all banks. This deepens the dilemma for banks that need to increase trust assets under management. A bank official lamented, "Due to government regulations, we bear the burden of diversifying products and improving operational efficiency in the trust competition."