KB, Shinhan, Woori lose growth momentum

By Kim Yoo-chul

KB, Shinhan, Woori and other banks are losing growth momentum due to saturation of the domestic market, financial industry officials said Wednesday.

To find new sources of income, lenders have expanded into Southeast Asia and other emerging markets. But they have seen little success, losing tens of millions of dollars in the process.

Soaring household loans amid the sluggish real estate market have become a liability for local banks, which have been earned hundreds of billions of won in interest income over the past few years.

In addition, the current labor-friendly administration has made it difficult for lenders to make their organizations more efficient and cost-effective as they need to reduce the size of their workforce because of increasing online transactions.

“As the country continues to face structural issues such as the need for corporate sector restructuring, a rapidly aging population and rising household debt, major domestic lenders may lose growth momentum in the medium term,” said a senior hedge fund manager at NH NongHyup Investment, adding it has reduced its investment in bank stocks.

An official at Woori Bank said rising household debt was worrying the bank as it has been increasing personal loans while reducing exposure to large companies.

“Woori's retail loans are manageable for the time being,” the official said. “But asset risks from personal loans, including mortgages, still persist. The bank is closely monitoring developments of macro-prudential measures by the government as growth in household debt could hurt the bank's profitability.”

To contain risks from the steep debt growth, financial regulators continue to tighten loan conditions. But the government is also considering easing lending rules to improve the property and construction sectors.

“There is the possibility that financial regulators will relax a rent-to-interest ratio, which banks have been using as part of underwriting criteria from March this year, as the government plans to apply a series of measures to boost the economy,” a Shinhan Bank official said. “It's less likely we will see rapid asset quality deterioration. But we are keeping an eye on the development of household debt and economic policies.”

A KB Kookmin official said a lack in “successful execution” of significant overseas acquisitions is posing threats for the long term.

“Local growth opportunities are diminishing,” the official said. “The situation is looking okay for the time being. However, we need to improve efficiency as there is limited potential for margin improvement.” The official said the bank's profitability will be stable in the short term because of higher net interest margins (NIMs) and lower credit charges.

The Bank of Korea (BOK) is expected to raise its policy rate by 25 basis points in the latter half of the year. But the KB official said the BOK's rate hikes won't be “too beneficial” to the bank's NIMs given the high level of household debt.

Other long-term challenges for the lenders include technology-driven disruption. For example, K-Bank, the country's first internet-only bank, has increased its market share rapidly since it began operations in April last year.

“Bank customers are shifting toward digital channels,” said KB Securities analyst Yoo Seung-chang.