South Korea’s biggest financial holding companies posted record earnings last year, as banks boosted lending rates and slashed deposit rates—an interest gap that widened further under regulatory pressure to curb household loans.
S. Korea’s 10 major financial holding companies collectively earned nearly 16.3 trillion won ($11.4 billion) in net profit last year, driven by a sharp expansion in interest margins. Banks led the surge, reaping the benefits of higher lending rates and lower deposit rates, while regulators’ attempts to rein in household debt inadvertently paved the way for increased profitability in the sector.
According to data released by the Financial Supervisory Service on Apr. 16, the combined net income of the 10 groups—including KB, Shinhan, Hana, Woori, NH, iM, BNK, JB, Korea Investment Holdings and Meritz Group—stood at around $16.79 billion in 2024. That marked an 11% jump from a year earlier.
While their net profits had hovered around the $14 billion range from 2021 to 2023, the figure rose by nearly $2 billion in just one year—thanks in large part to the growing gap between lending and deposit rates.
The increase was largely driven by the widening gap between lending and deposit rates. In July 2023, the average interest margin at the five largest banks was 0.43 percentage points.
However after Financial Supervisory Service Governor Lee Bok-hyun and other officials repeatedly urged banks to hold back on household loans to contain debt levels, the spread began to climb steeply. In doing so, they inadvertently gave banks the cover they needed to raise lending rates without hesitation.
By the end of the year, the average margin had widened to 1.17 percentage points—an increase of 0.8 percentage points in just six months. The wider the gap, the higher the profits for banks.
“The government’s poorly thought-out policy to bring down housing prices by restricting loans ended up just making banks richer,” said Kim Dae-jong, an economics professor at Sejong University.
On July 2, 2024, Lee warned during an internal meeting that premature expectations of interest rate cuts and aggressive lending linked to a rebound in housing prices could once again worsen the household debt problem.
At the time, household debt was rising at nearly 5 trillion per month. In response, the financial regulator summoned deputy CEOs from 17 banks and urged them to rein in loan growth.
But much of the responsibility lay with the government itself. When housing prices began climbing in June, authorities should have gone ahead with the second phase of the DSR regulation in July as scheduled.
The rule, which caps the amount individuals can borrow based on their income and their total principal and interest payments, was designed to tighten loan eligibility.
Instead, the government abruptly postponed the rollout to September. As a result, household loan demand exploded in July. Only then did authorities start pressuring banks to scale back lending.
Accordingly, banks moved quickly to act on the shifting signals. Between July and August, S. Korea’s five largest banks collectively raised lending rates 22 times—an average of more than five hikes per bank.
During that two-month stretch, KB Kookmin Bank lifted its mortgage rates by 1.13 percentage points, Shinhan Bank by 1.3 points, and Woori Bank by around 1.4 points.
Deposit rates, on the other hand, remained largely unchanged. As a result, the average spread between lending and deposit rates widened from 0.43 percentage points in July to 0.73 points by September.
Even as lending rates continued to climb, Lee continued to make public remarks emphasizing the need to restrict household loans. That gave banks more justification to keep pushing up rates.
“Normally, we’d worry about public backlash when raising lending rates,” said an official at a major commercial bank. “But with the FSS chief openly signaling us to do so, we didn’t have to worry as much.”
As a result, average mortgage rates, which had stood at 3.5% in July, rose to 4.25% by December. In contrast, the average one-year fixed deposit rate fell from 3.38% to 3.12% during the same period, as banks cited anticipated base rate cuts. The gap between the two widened from 0.43 to 1.17 percentage points. The profits from that widening margin flowed straight into the coffers of the financial holding companies.
