Low interest rate, bad debts to weigh on banks' 2024 net incomes: KIF

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The combined net income of local commercial lenders will fall to 19.6 trillion won ($14.9 billion) next year from 21.6 trillion won this year, led by a slowdown in healthy asset growth associated with credit risks, compounded by reductions in net interest margins (NIM) due to declining interest rates, according to a private think tank.

The Korea Institute of Finance (KIF) said there are increasing signs of risky debts as evidenced by a rise in overdue loans, a red flag in sound capital management alongside insolvency risks built up over the pandemic years. Other unfavorable factors include failed attempts to extend debt maturities, delayed interest payments as well as the possibility of outright bankruptcies.

“Local lenders should find ways to mitigate risks, including heightened financial market volatility, asset quality deterioration amid fierce market competition,” KIF researcher Kwon Heung-jin said during a seminar at the Korea Federation of Banks in Seoul.

Equally important are efforts to fortify banks’ digital competitiveness and establishing the groundwork for sustainable growth and risk management, he noted.

The profitability outlook for the non-bank sector will be limited next year, due mostly to strengthened regulations and sustained high borrowing rates.

Credit card companies and capital financing companies are required to bolster financial soundness since constrained financial conditions will continue for the time being.

Local securities firms are expected to display similar performance to this year, the institute added.

Rising brokerage fees are expected to generate stable incomes, but earnings are not forecast to significantly surpass market consensus, bogged down primiarly by continued market uncertainties.

Other fee income from corporate financing is not likely to increase due to tightened financing conditions.

Insurers will be the only ones to see profitability improvements despite slow growth.

Demand for insurance will continue to plummet due to the low birthrate and aging population, as well as sustained high borrowing rates and continued financial market volatility.

But the high interest rates are good news for insurers’ profits from asset management and overall enhanced financial soundness.