Korean banks urged to break heavy reliance on interest income

Non-interest related earnings made up 12% of 2018 profits.

The unhealthy proportion of interest in the earnings mix of South Korean banks raises a pressing need to diversify their income streams, reports Korea Herald which cited a report from the Korea Institute of Finance.

The development comes after non-interest related earnings accounted for just 12% of profits by local banks in 2018 compared to the global range of 20-30%. This translates to around $4.84b (KRW5.5t) of the $40.29b (KRW45.8t) in total profits reported by lenders as banks opt for the tried-and-tested route of financing “safe” companies that can bring in interest, which in turn has hampered diversification efforts.

In a breakdown, Woori Bank had the highest share of non-interest earnings at 16%. Shinhan, Hana and KB Kookmin trail behind at 13.6%, 12.% and 11% respectively.

“With a drop in growth and with state regulators tightening borrowing rules, banks need to come up with more innovative strategies for sustainable growth,” a researcher was quoted in KH.