The four largest financial holding companies in South Korea, that is, Shinhan, KB, Hana and Woori, posted a record-high net profit of more than 11 trillion won last year. However, the four banks of the companies recorded a decline in net interest margin of 13.25 basis points on average during the same period.
Specifically, the financial holding companies’ net profit added up to 11,027.8 billion won in 2019, up 4.8 percent from a year ago. On the other hand, the four banks’ net interest margins fell without exception in the fourth quarter of that year. The net interest margin is calculated by dividing the difference between a bank’s interest income and financing costs by its total assets. It is one of the most widely used banking profitability indices.
“Last year, the Bank of Korea lowered the key rate twice to result in a lower market rate and the decline in net interest margin,” said one of the banks, adding, “In addition, the government’s loan transfer program for fixed interest loans affected the net interest margin.” According to industry sources, the margin is likely to keep falling this year with the central bank predicted to lower the key rate again. Also, the liquidity factor related to the program is likely to continue to affect the margin in the first quarter.