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Global credit rating agency Moody’s has maintained a negative outlook on South Korean banks, citing deteriorating operating conditions, asset quality, and profitability over the next 12 to 18 months. The agency warns that weak consumer spending, a sluggish construction sector, and slowing export growth are driving concerns over rising loan delinquency rates and worsening asset quality.

Moody’s forecasts South Korea’s real GDP growth to decline to 1.6% in 2025, significantly below the long-term average of 2.5%. The report also highlights political uncertainty, weak job growth, and a struggling real estate market, which are expected to dampen consumer sentiment and weigh on overall economic performance.

Key Risks for Korean Banks

• Asset Quality: Delinquency rates in small business loans and unsecured personal loans are expected to remain around 0.5%, posing a broader financial sector risk. Despite regulatory measures

  such as stress capital buffers and Liquidity Coverage Ratios (LCRs), Korean banks still lag behind their global peers in terms of capital strength.

• Profitability: Return on Average Assets (ROAA) is projected to decline to 0.5-0.6%, while Net Interest Margin (NIM) is expected to shrink from 1.6% to 1.5%. Though loan-loss provisions remain stable, weak profitability and deteriorating financial health of non-banking affiliates within financial groups pose additional risks.

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