Korea’s major lenders making easy money off rising rates and loan demand from big firms

South Korea’s four major financial groups are making easy money riding on fast rises in interest rates and lending mostly to large companies, playing by the famous saying that banks are places where they lend an umbrella in fair weather and ask for them back when it starts raining

According to their financial statements for the third quarter released earlier this week, their net interest margin (NIM), the ratio of interest revenue in income, gained 5 to 10 percentage points against a year ago period. The base rate lifted from August last year from a record low of 0.5 percent has reached 3 percent in October.

The ratio at Shinhan Financial Group went up to 76.2 percent from 70.3 percent last year. The share at KB rose to 75.4 percent from 64.5 percent, at Hana to 86.1 percent from 79.9 percent and Woori to 87.4 percent from 82.3 percent.

All major lenders celebrated best three-month bottom-line in the third quarter on increased NIM, their primary source of income.

Shinhan Bank’s hit 1.68 percent in the third quarter, up 0.05 percentage points from a quarter ago. KB Bank’s NIM rose 0.03 percentage points to 1.76 percent during the same period, and Woori Bank up 0.04 percentage points to 1.62 percent and KEB Hana Bank up 0.03 percentage points to 1.62 percent.

NIM goes up when lending rates rise faster than deposit rates.

According to Bank of Korea, deposit rate at banks rose an average 0.52 percentage point while lending rate added 0.8 percentage point.

Their revenue from the rate discrepancy increased due to jump in loan demand from large companies as fund-raising from capital market became difficult due to sluggish securities market.

KB increased 12.7 percent in loans to large companies, followed by Hana (8.2%), Woori (7.5%), and Shinhan (6.6%). Their lending to smaller companies stopped at a growth of around 2 percent.

Corporate demand for bank loans will likely grow in the fourth quarter, showed a BOK survey on Wednesday.

Banks lend loans to large companies at lower than 5 percent, whereas three-year AA- corporate bond currently yields at 5.5 percent and BBB- yield hovers over 11 percent.

[ⓒ Maeil Business Newspaper & mk.co.kr, All rights reserved]