Banks Busy Increasing Loans Despite Strong 1Q Earnings Outlook

1Q Net Income of Major 4 Financial Holding Companies' Controlling Shareholders Expected at 4.1 Trillion
Concerns Over Household Loan Decline Despite Strong Performance
Efforts to Expand Loans Through Interest Rate Cuts and Limit Recovery

[Asia Economy Reporter Minwoo Lee] The four major financial holding companies are expected to continue their strong performance in the first quarter of this year. However, with household loans, the foundation of interest income, declining, there are concerns about a performance peak-out, prompting efforts to expand lending.

According to the financial sector on the 11th, the first-quarter earnings of the four major domestic financial holding companies?KB Financial Group, Shinhan Financial Group, Hana Financial Group, and Woori Financial Group?will be announced starting from the 20th. Strong results are anticipated for now. According to financial information analysis firm FnGuide, as of this date, the market consensus for the controlling shareholders' net profit of the four major financial holding companies totals 4.1006 trillion KRW. This represents a 3.3% increase compared to the same period last year and a 75.9% increase from the previous quarter.

Although securities firms' earnings are expected to be somewhat sluggish due to a faltering stock market, the improved performance of banks, the main subsidiaries of the financial holding companies, is expected to drive the upward trend in earnings. With household loan interest rates, including mortgage loans, surpassing 6%, net interest margin (NIM) improvements and record-high profits are anticipated. The Bank of Korea’s base rate hikes in the second half of the year are considered inevitable, with only the number of hikes in question. This underpins the expectation that interest income will remain steady throughout the year.

Nevertheless, commercial banks face significant challenges as the decline in household loans shows little sign of reversal. In March of this year, the outstanding household loans of the five major banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?stood at 703.1937 trillion KRW, down 2.7436 trillion KRW from the previous month. The decrease was larger than February’s 1.7522 trillion KRW reduction, marking the third consecutive month of decline in household loans. Given the financial authorities’ conservative recommendations on provisioning and the burden of foreign exchange losses due to currency fluctuations, concerns are emerging within banks that the upward trend in earnings may slow down.

In response, banks are focusing on expanding loans. Hana Bank decided to raise the credit loan limit for Hana OneQ from 150 million KRW to 220 million KRW starting from 5 p.m. on the 12th. This restores Hana Bank’s credit loan limit to the level before last year’s financial authorities’ household loan volume regulations. Additionally, from this month, Hana OneQ’s credit loan additional interest rate has been lowered by 0.2 percentage points (p) to attract customers. Woori Bank also announced that starting from the 11th, subscribers to its real estate platform ‘Woori Wonderland’ who take out new real estate-secured loans or jeonse deposit loans will receive a preferential interest rate of 0.1%p. On the 21st of last month, it had already offered a special preferential interest rate of 0.2%p on new mortgage and jeonse deposit loans.

With internet-only banks also lowering lending thresholds, competition among banks to attract loan customers is expected to continue for the time being. K Bank increased the maximum limit for its overdraft accounts by 50 million KRW to 200 million KRW starting this month. Since the end of last month, it has also lowered interest rates by up to 0.4%p annually on three credit loan products: ‘Credit Loan,’ ‘Credit Loan Plus,’ and overdraft accounts. Kakao Bank, earlier this month, removed the price limit on mortgage loan products for apartments in the metropolitan area priced below 900 million KRW according to KB Real Estate prices and raised the loan limit from 630 million KRW to 1 billion KRW.