Korean banks have been profiting even as their counterparts around the globe are all struggling against the unprecedentedly lengthy ultra-low or under-zero interest rate environment by charging more on lending than its rate offerings for savings.

According to the Financial Supervisory Service on Wednesday, Korean banks revenue from interest in the second quarter increased by 200 billion won on year to 8.5 trillion won ($7.63 billion). They earned more from interests from the year-ago period when the benchmark interest rate was 1.75 percent, compared with current record-low of 1.25 percent.

Elsewhere, banks have been suffering big as central banks kept the base rate at zero percent and even lower.

Mitsubishi Financial Group (MUFG), Japan’s largest financial group, posted a net profit of 188.9 billion yen in the second quarter, down 32 percent from a year ago. The other top two banks Mizuho and Sumitomo Mitsui Financial Group saw their second-quarter net profit shaved by 16 percent and 31.2 percent, respectively, from a year ago. The Bank of Japan had sent the interest rate to the negative zone in February.

Morgan Stanley estimated the net interest income of 20 large European banks will fall sharply by 2.8 billion euros in 2017 if the European Central Bank (ECB) cuts the interest on their excess reserve deposits to the ECB by another 0.1 percentage point.

Korean bank, however, kept up profit by refusing to bring down lending rates as fast as they did with deposit rates.

Banks’ net interest margin (NIM), a more precise measure of their profitability than the deposit-loan margin, has been improving. The figure slipped to 1.55 percent in the first quarter from 2.11 percent in late 2012. It added 0.01 percentage point in the second quarter from the first three months as banks upped marketing on mortgage-backed loans of 20 to 30 years that bring in fixed and long-term returns regardless of the market rates.

Moreover they encouraged customers on demand deposits that offer hardly any interest returns as to profit from wider gap in lending and saving rates.

The difference in loan and saving maturity duration averaged 0.15 year in the second quarter of this year, compared with 0.03 year from 0.12 year at the end of last year.

By Kim Hyo-sung and Park Yoon-ye

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