Banks enjoy record net profit in Q1 as interest rates soar

Banks raised a record net profit in the first quarter on steep interest rate increases.

ATMs in Seoul on Sunday [YONHAP]

Banks raised a record net profit in the first quarter on steep interest rate increases.

They gained 7 trillion won ($5.3 billion) in net profit in the January-March period, up 24 percent from a year earlier, according to the Financial Supervisory Service (FSS) preliminary data on Friday. The figure is up 55.9 percent from the previous quarter.

Interest profit grew 16.7 percent on year to 14.7 trillion won in the first quarter. But the figure dwindled by 4.4 percent from a quarter earlier, the first quarterly fall since the second quarter of 2020.

The FSS cited the accumulated impact of steep interest rate increases as a reason for their increased earnings.

The Bank of Korea moved up the policy rate from 0.5 percent in July 2021 to 3.5 percent in January 2023. The central bank has kept the rate steady since and through the latest Monetary Policy Board meeting in May.

Non-interest profit jumped 64.1 percent on year to 2.1 trillion won due to the improved securities earnings.

Net profit at Woori Bank jumped 20 percent on year to 859.5 billion won in the first quarter. Net profit at Hana Bank jumped 45.5 percent in the same period to 974.2 billion won, while that at Shinhan Bank rose 7.9 percent to 931.6 billion won.

Earnings at smaller banks also jumped.

Kwangju Bank raised a record net profit in the first quarter, up 19.4 percent on year to 62.2 billion won. Net profit at Daegu Bank advanced 7.7 percent to 127.8 billion won, while the figure at Busan Bank jumped 13.3 percent to 145.3 billion won.

Net profit at internet-only Kakao Bank soared 52.5 percent to 101.9 billion won.

Banks have been put under pressure for their record earnings from largely interest profit.

Financial regulators have pressured banks to play a bigger role in sharing their record profit with the public since early this year, describing them as having "a strong characteristic of public goods."

Korea's five largest commercial banks — KB Kookmin, Shinhan, Hana, Woori and NongHyup — have been criticized for increasing severance pay, bonuses and compensations for voluntary retirees.

The financial authorities encouraged banks to improve their financial soundness by bolstering their total loss-absorbing capacity and diversifying profit sources beyond interest margin. They were also encouraged to expand support programs for vulnerable debtors.

The FSS "will strengthen capacity for investment banking of banks and brokerage firms to raise their global competitiveness," Lee Bok-hyun, its governor, said at a press conference held Thursday in Yeouido, western Seoul, to celebrate his first year in office.

"The FSS will take the lead in globalizing domestic finance."

BY JIN MIN-JI [jin.minji@joongang.co.kr]