Banking:Interest income to grow q-q
WHAT’S THE STORY?
NIS flat m-m in April: According to the Bank of Korea’s lending rate data,banks saw NIS on their total balance in April stay flat m-m at 2.26%. Meanwhile,the household lending rate has been rising since the start of the year.NIM to rise further in 2Q: We expect banks’ NIM to keep rising in June as: 1)the Cofix rate on new funds—the benchmark for household loans—in April wasup 15bps from an Aug 2016low; 2) loans are likely to be repriced higher; and 3)funding rates should rise slower than market interest rates do, given banks’ largebase of low-cost deposits—nb, low-cost share of deposits at the four major banksaverages 41.2%. That some banks hiked their average mortgage spread in May—it widened 20bps at Woori Bank—and that the real estate market is recoveringalso bodes well for NIM.Interest income to grow in 2Q: We expect interest income in 2Q to grow q-q as:
1) NIM, as stated, should keep rising; 2) loans grew a robust 2% y-y overJanuary-April; and 3) fewer business days in 1Q created a low base.Advise selective approach: We advise taking a selective approach, believingvaluations will diverge based on how successfully banks utilize capital to growboth organically and inorganically. Our top pick remains KB Financial Group.