South Korean major banks maintain robust asset quality despite capital pressures

Fitch Ratings has assessed the asset quality and profitability of South Korea’s four major commercial banks—KB Kookmin, Shinhan, Hana, and Woori—as robust. The agency assigned an asset quality rating of ‘A+’ and a profitability rating of ‘A-’ to these institutions, noting that risks related to real estate project financing (PF) and vulnerable borrowers remain manageable due to conservative lending practices and high collateral ratios.

Despite stable performance, the banks face increasing pressure regarding capital management. Risk-weighted assets (RWA) for the four major banks reached 897 trillion won as of late June, a 6.8% increase from the previous year. This growth is largely driven by a strategic shift from household loans to corporate lending, which carries higher risk weights.

Additionally, banks must balance the expansion of corporate and productive finance with increasing demands for shareholder returns. While common equity tier 1 (CET1) ratios remain above regulatory minimums at approximately 14–15%, the rapid rise in RWA and the need to support financial holding companies' dividend policies present ongoing challenges for maintaining capital adequacy.