"High Interest Rates Expected to Boost Bank NIM Through Year-End"

Total Loan Growth Expected Around 5% This Year
"Quarterly NIN Uptrend to Continue Until Year-End"

[Asia Economy Reporter Minwoo Lee] As interest rates continue to rise, there is a forecast that banks' net interest margin (NIM) will trend upward until the end of this year.

On the 3rd, BNK Investment & Securities made this analysis. It is an inevitable trend as interest rates rise amid an overall increase in loans. In fact, as of the end of last month, the won-denominated loans of the five major commercial banks?KB Kookmin, Shinhan, Hana, Woori, and NH Nonghyup?amounted to 1,389.1809 trillion won, an increase of 4.776 trillion won compared to the previous month. Although household loans decreased by 1.4094 trillion won, corporate loans, especially loans to small and medium-sized enterprises, increased, expanding the total credit scale.

Bank loans are expected to grow by around 5% going forward. Kim In, a researcher at BNK Investment & Securities, said, "Due to strengthened bank risk management, total loans are expected to grow by about 5% this year," adding, "Despite expectations of deregulation following the new government's inauguration, the burden of rising interest rates has significantly reduced transaction volumes, making additional growth in mortgage loans more difficult than expected."

Interest rates are also steadily rising. The Bank of Korea raised the base rate five times from August last year to May this year, increasing it from 0.50% to 1.75%. Since there is a time lag in reflecting the base rate in deposit and loan products, the interest rate spread between deposits and loans may widen further.

According to the Bank of Korea, as of the end of May, the total loan interest rate based on outstanding balance was 3.45%, up 9 basis points (bp, 1bp=0.01%) from the previous month. The total deposit interest rate based on outstanding balance was 1.08%, rising only 7bp from the previous month. Thus, the interest rate spread based on outstanding balance widened by 2bp from the previous month to 2.37 percentage points (p). However, the interest rate spread based on new transactions in May decreased by 4bp from the previous month to 1.66%p.

Researcher Kim forecasted, "Considering the base rate hikes in April and May and two additional hikes in the second half of the year, the net interest margin is expected to rise by 7bp in the second quarter compared to the previous quarter, and continue a trend of increases by 3bp and 1bp in the third and fourth quarters, respectively."