Korean banks' operating environment, asset quality, and profitability to deteriorate over the next 12-18 months
2025 GDP growth expected at 1.6%, with ROAA at 0.5-0.6% and NIM shrinking to 1.5%
Loan delinquency rates in small business and unsecured personal loans to remain at ~0.5%
Opinion
Korean banks face fundamental headwinds from weak consumer demand, a slowing construction and real estate sector, export declines, and political uncertainty. Despite regulatory efforts, financial sector risks are expected to rise.
Core Sell Point
한국 은행주의 펀더멘털 약화와 경기 둔화 우려가 주가 하락 압력을 가할 수 있으므로, 투자자들은 보수적 접근과 함께 리스크 관리를 철저히 해야 한다.
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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