NIM of Korean banks forecast to jump towards year end

But it's at a modest pace.

The NIM of Korean banks is predicted to improve going into the third quarter as high yield subordinate debts issued after the Global Financial Crisis are rolled over at a lower rate.

According to a research report from Nomura, the NIM of the banks are also forecast to improve further as the Bank of Korea (BOK) starts the rate hiking cycle.

The report also noted the view of Nomura's economics team that the BOK will raise its benchmark rate by December as demand-related prices from improving consumption should place upward pressure on the CPI.

Meanwhile, the report also noted the decline in May of net interest spread (NIS) and the newly extended corporate loan rate.

Here's from Nomura:

Depository banks’ weighted average net interest spread (NIS) fell 1bp m-m on outstanding balances in May (deposit and loan rates fell by 1bp and 2bps respectively). The NIS on newly extended loans also fell by 1bp m-m.

The interest rate on newly extended deposits dropped by 1bp to an all-time low of 2.59%. According to the Bank of Korea (BOK), deposit rates fell alongside market rates in May (KTB yields, across the maturity spectrum, fell along with MSB and corporate bond yields).

Interest rates on newly extended loans also fell (-2bps) as the increase in loans to companies with strong credit brought down corporate loan rates, while competition for mortgage loan growth placed downward pressure on household loan rates.