"Banking Sector Benefits from Rising Loan Interest Rates... Profitability Improvement Expected to Continue"

[Asia Economy Reporter Park Ji-hwan] Domestic banks are expected to continue a solid trend of profitability improvement due to increased interest income from rising loan interest rates.

According to Hanwha Investment & Securities on the 28th, the net interest spread (NIS) in the banking sector widened by 2 basis points to 2.16% at the end of last month compared to the previous month. Compared to the end of last year, it expanded by 11 basis points. Last month, the deposit interest rate was 1.29%, while the loan interest rate was around 3.07%.

As the increase in loan interest rates is greater than that of deposit interest rates, the net interest spread has widened to the largest extent in 11 years, and there is a high possibility of further expansion of the net interest spread. Bank stocks tend to show improved profitability when the net interest spread widens during periods of interest rate hikes.

Kim Do-ha, a researcher at Hanwha Investment & Securities, explained, "The actual loan interest rates are rising faster than expected," adding, "Considering that the fundamental purpose of the price increase is to suppress demand, it seems unlikely that loan interest rates (especially for households) will decrease in the near term."

He also analyzed, "Of course, deposit interest rates will rise with market interest rates, but the proportion of low-cost deposits is still at an all-time high," and "the interest rate sensitivity of deposits is expected to be lower than that of loans."

Researcher Kim Do-ha stated, "With margin expansion amid a significant increase in average loan balances, the net interest income of the banking sector is expected to continue a solid growth trend."