Banks' Net Interest Margin Expected to Increase Further in Q2

[Image source=Yonhap News]

[Asia Economy Reporter Song Hwajeong] Due to interest rate hikes, banks' net interest margin (NIM) is expected to increase further in the second quarter of this year. Initially, it was forecasted to rise until the second quarter and then slow down from the third quarter, but if the current trend continues, the upward momentum is expected to persist into the third quarter as well.

According to Hana Financial Investment on the 19th, banks' NIM in April is estimated to have risen more than in March. Jeongwook Choi, a researcher at Hana Financial Investment, analyzed, "Since the end of March, interest rates surged sharply, causing the NIM in March to increase significantly compared to January and February. Although interest rates stabilized somewhat in April, the monthly average interest rate in April was much higher than in March, so the upward trend in NIM during the month appears to be continuing."

According to the Bank of Korea, the loan-deposit interest rate spread based on March balances was 2.32 percentage points, expanding by 5 basis points (1bp=0.01%p) compared to the previous month. This is the largest increase in three years since March 2019.

Additional increases compared to April are expected in May and June, so the rise in banks' NIM in the second quarter is projected to be greater than in the first quarter. Researcher Choi stated, "The average increase in banks' NIM in the second quarter will reach 7bp, and among banks, Shinhan and Woori's NIM increase could exceed 10bp," adding, "Accordingly, banks' net interest income in the second quarter is highly likely to surge by more than 5% compared to the previous quarter."

The upward trend in NIM is also expected to continue into the third quarter. Initially, it was anticipated that NIM would rise until the second quarter and then plateau. Eun-gap Kim, a researcher at IBK Investment & Securities, said, "The previous assumptions reflected in banks' profit forecasts were that NIM would rise until the first half of the year and then stabilize, but the recently revised assumptions indicate that NIM will increase at least until the third quarter," adding, "Previously, it was expected that NIM would rise by at least 5bp year-on-year this year, but now it is expected to increase by more than 10bp."