ATMs of local banks are lined up in a row in Seoul in this file photo. Korea Times file

By Yi Whan-woo

The series of steep rate hikes throughout 2022 have been causing people to take out fewer loans, prompting commercial banks to search for alternative ways to make profits in 2023 after relying heavily on net interest incomes.

The total amount of household debt, which stems mainly from housing loans, dropped to 1,058.8 trillion won ($776 billion) as of October from 1,060.7 trillion won in December 2021, according to the Bank of Korea (BOK).

This decline in the total amount of household debt comes as the benchmark interest rate was hiked six times in a row this year through November.

The base rate stands at an over 10-year high of 3.25 percent, and accordingly, the housing loan rate stands at approximately 7 percent annually.

Moreover, the BOK is anticipated to hike the policy rate to up to 3.5 percent in 2023.

Customers are in particular refraining from buying homes with bank loans as housing prices are plummeting and their decline is likely to continue through next year.

Under the circumstances, banks are expected to shift away from raising profits through interest next year even though that strategy has been beneficial so far.

The aggregate net income of the nation's four largest banking groups ― KB, Shinhan, Hana and Woori ― amounted to a record 13.85 trillion won in the first three quarters of 2022.

The earnings were driven by net interest income, which surged to a record 10.15 trillion won.

"The policy rate is now so high and it can work against banks to reap profits through interest," an industry source said.

The source noted that public sentiment against such "excessive" interest revenue in the midst of high borrowing costs also motivates lenders to go for alternative sales strategies.

Meanwhile, some sources speculate that the lenders face difficulties earning money through non-banking sectors.

They noted that sales of derivative-linked funds (DLF) and other stock-related financial investment products are sluggish, as the stock market has taken a beating in general throughout 2022.