Banks launch new biz to fight low interest margins

Korea Times

published: 2016-06-19

Banks rush to cut their interest rates on deposits, and launch real estate consulting services for rich customers, seeking to reduce costs and find out new revenue sources in the era of historically low interest rates, lenders said Friday

Citibank Korea announced earlier this week that the bank lowered its interest on deposits worth less than 10 million won for self-employed and small business owners to 0.01 percent from 0.1 percent. It means that a customer will be paid 900 won if he or she deposits 9 million won for one year.

Woori Bank and KEB Hana Bank have also reduced their interest rates on deposits by up to 25 basis points. Last month, KB Kookmin Bank hiked its handling fees on transactions and remittances.

The banks' move to cut rates and increase fees came after the Bank of Korea lowered its key interest rate last week to a record low 1.25 percent from 1.5 percent, citing slow economic growth and low private consumption. The central bank's decision to cut the benchmark rate, the first time in a year, surprised the market as its leaders showed few signs it would do so.

KEB Hana, the largest lender in the country by assets, reached out to real estate consulting services, as part of its efforts to replace revenues hit by low net interest margins. The services target rich customers who want to invest their assets in more profitable places.

“With the consulting service on properties, we expect that we can offer loans to customers through our branches close to them,” said the lender in a statement.

KEB Hana wants to add value with the consulting services in real estate. It has offered tax and accounting services for rich customers.

Asset managers also seek to draw investors who are unsure where to allocate their money in an era of low interest rates. JPMorgan Asset Management promotes its Global Macro Opportunities Fund, which it claims can give an 11 percent return rate since Nov. 2012 while managing volatility, regardless of market environment.

“When they (market returns) are up, we make money. When they are down, we make money,” said Robert Worthington, an executive director at the firm, in a luncheon meeting with reporters in Seoul earlier this week.

He said the fund follows market directions when their returns are up, but changes its strategy to more sophisticated ways when they are down. During volatile times, it invests in specific equities, bonds, currencies and derivatives, seeking to exploit the gaps in values.

Market observers advise consumers to invest their money in low-risk funds, rather than keeping the money in bank accounts that yield less than the inflation rate.

Many are pulling their money out of large commercial banks to put them in other financial institutions, such as savings banks or asset management firms, which offer higher yields. Deposits held at non-banking financial institutions came to 2,022.15 trillion won in April, up 111 trillion won, or 5.8 percent from December, the BOK said.

As interest rates are falling, so are the margins of lenders. According to data from the Financial Supervisory Service, local lenders' net interest margin (NIM) dropped to 1.55 percent in the first quarter from 1.63 percent a year earlier. NIM is a key indicator of a bank's profitability.

The NIM continued to tumble for the last few years, burdening performances of local banks. Korean banks' combined revenues from interests reached 8.5 trillion won in January-to-March period, down 100 billion won from the previous quarter.

By Kim Jae-won

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