[2020결산-은행] Next year’s zero interest rate… Insolvency bomb’jackkakkak’ in support of corona

Due to the prolonged corona 19 crisis, the financial market suffered this year. In an unprecedented era of zero interest rates, the interest margin of banknotes has hit a bottom. At the same time, the banking sector, which has emerged as a Corona 19 relief pitcher, has initiated 110 trillion won in financial support alone, raising concerns about a’bad bomb’.

In 2021, the low interest rate trend is expected to continue for the time being. The banking sector is expected to increase trusts to find new food and actively compete with Big Tech to secure customers.

◆ Zero interest rate era… Financial support’double high school’

This year, the Bank of Korea has opened an era of zero interest rates. In the early days of the spread of Corona 19 in March, interest in the financial market was staggering, and the base interest rate was significantly lowered from 1.25% to 0.75%. In May, it further cut to 0.50%. The current benchmark interest rate is virtually zero and stands at the effective lower limit of monetary policy.

The era of ultra-low interest rates is not a favorable situation for banknotes. The net interest margin (NIM), which is directly linked to the banking industry’s own interest income, reached a record low. Domestic banks’ net interest margin (NIM) as of the third quarter was 1.40%, down 1.16%p from last year.

Corona 19 financial aid also hit the banking sector. As SMEs and small business owners were suspended from repaying the principal and interest on loans until March next year, they were in a position to have a’bad bomb’. As banks built enormous provisions to ease the shock, the net profit of the five major banks fell by 6-11% from last year until the third quarter of this year.

Political circles and financial authorities have been demanding the banking sector to ease the loan-to-deposit margin. In addition, it was pointed out that it was’government finance’ by recommending a reduction in dividends.

However, as liquidity released on the market led to speculation such as real estate and stocks, the financial authorities began tightening loans. Since mid-December, a significant number of commercial bank loans have disappeared.

Hana Financial Investment Analyst Choi Jeong-wook predicted, “Although regulatory risks such as dividends and loan rates from financial authorities continue, the scale of dividend reductions for each bank this year will not be large.”

◆ stigma as’fund fraud’… Where is the flower of finance

Private equity funds, which were called the flower of finance, were stained with scams. There are about 10 funds, including Lime Assets, Optimus, and Discovery Funds, that have mass-produced massive damages due to the redemption suspension.

In particular, the Optimus Fund, which broke out in June, is insolvent. They tricked them into investing in secure public institution accounts receivables and put 1.7 trillion won into insolvent companies and real estate. In addition to poor products, incomplete sales in the financial sector were added layer by layer, and the damage went to financial consumers intact. Suspicion that political officials were involved, and the situation spread rapidly.

As the whole story of the private equity crisis emerged one after another, consumers turned their backs on the financial sector one after another. The Financial Supervisory Service’s compensation adjustment plan is ahead, but even if the mediation proposal comes out, there is no coercion, so if financial companies do not accept it, there is a long way to go.

Each bank announced its consumer protection policies one after another and made efforts to restore trust. Shinhan Bank has introduced a financial consumer protection officer system for consumer protection. KB Kookmin Bank established the Consumer Protection Headquarters, and Hana Bank introduced the’Investment Product Recall System’, a responsible sales system. Woori Bank operates a financial consumer protection group under the direct control of the bank manager.

◆ Low growth and low interest rates are concerned about falling bank profitability and a surge in insolvency

Banks’ basic profitability deterioration due to low growth and low interest rates is expected to continue next year. Net interest margin (NIM), the main source of income for banks, was in the late 2% range before and after the financial crisis, but fell to 1.4% this year. Experts have a common opinion that there is a high possibility that it will fall below 1% in 2023.

The potential risk of banks is also deepening.

After restructuring large corporations such as shipbuilding, shipping, steel, oil, and chemicals in 2014, banks have expanded their loans a lot, centering on SME loans. In fact, from 2015 until recently, loans to large corporations decreased by 50 trillion won, but loans to SMEs increased by nearly 200 trillion won. The possibility of risk for marginal companies such as small and medium-sized enterprises with relatively insufficient liquidity has increased.

In addition, in the situation where household loans including self-employed loans have increased sharply due to the expansion of policy financing, there is also a risk due to an excess of credit supply as low interest rates overlap.

According to the Korea Financial Research Institute, household loans are currently around 1600 trillion won, but self-employed loans are about 400 trillion won, which is over 2,000 trillion won. This is more than 100% of GDP (Gross Domestic Product), and household loans are the highest among OECD (Economic Cooperation and Development Organization) countries. As the base rate decreases, banks are likely to increase their credit supply for high-risk, high-yield loans, resulting in deteriorating loan quality and increasing risk.

◆Competition to secure customers with Big Tech, focusing on expanding trust

Banks are actively entering the trust business as a new asset management tool. Domestic trusts are recognized as a kind of financial product prepared for the era of low interest rates. Some point out that a trust revitalization plan should be prepared so that the trust can provide a variety of customized comprehensive asset management such as asset management design, inheritance support, and adult guardianship.

Although there is currently no limit on the scope of trust property under the Trust Act, the Capital Markets Act restricts the scope of trust property to property (money, securities, monetary bonds, real estate, superficies, chonsegwon, land leasehold, etc.). There is a limit to making.

Experts point out that it is necessary to separate the trust business law from the capital market law or to a method of discipline under the trust law.

Min-gyu Song, a senior research fellow at the Korea Financial Research Institute, advised, “We should allow the opening and sale of non-face-to-face channels for trust accounts using robo-advisors or digital authentication, and easing advertising regulations.” Currently, trust products can only be sold through the window, and promotion of trust products to unspecified people is prohibited.

Banks are expected to focus on securing digital financial competitiveness next year, such as utilizing existing customer data, enhancing data analysis capabilities, and cultivating digital talent. The recent trends in the IT-related budget of domestic banks account for more than 10% of the total budget.

Accordingly, fierce competition is expected between banks, big tech, and fintech for customer contact points. In order to survive the competition with Big Tech, banks plan to secure organizations that collect, manage, and analyze financial data, and further expand combined products through partnerships with various businesses such as telecommunications and distribution.

In addition, in line with the expansion of the my data business through open banking and the use of big data, banks are focusing on increasing the utility of their financial platforms.

“As the banking process is rapidly shifting to non-face-to-face business, banks will actively try to change the hybrid method that adds the advantages of the face-to-face business method to the use of new technology,” said Seo Jeong-ho, a research fellow at the Korea Financial Research Institute. It is important to maintain the professionalism and reliability of financial services while improving the efficiency of work that can be automated and overcome.”