Net profit at domestic banks hits 13.8 trillion won in H1

Non-interest income drops 2.3 trillion won on securities losses

Delinquency rate climbs to 0.56%; bad-loan ratio reaches 0.63%

Household debt tops 2,000 trillion won; corporate loan risks mount

Bank ATM machines in Seoul. [Yonhap]
Bank ATM machines in Seoul. [Yonhap]

Domestic banks posted 2.5 trillion won ($1.81 billion) more in interest income in the first half of this year, yet net profit for the period fell 900 billion won. Rising market interest rates triggered valuation losses on securities holdings, while selling, general and administrative expenses and loan-loss provisions also increased. Analysts say the simultaneous rise in delinquency rates and bad-loan ratios makes sound asset-quality management increasingly critical for the banking sector.

According to a report released Saturday by the Korea Institute of Finance titled "Domestic Banks' Operating Performance in the First Half of 2026 and Future Challenges," net profit for the period at domestic banks totaled 13.8 trillion won ($10 billion) in the first half of this year, down 900 billion won from the same period last year.

Interest income rose 2.5 trillion won year-on-year as interest-earning assets, including loan receivables, expanded and net interest margins improved on the back of higher market rates.

Non-interest income, however, fell 2.3 trillion won, dragged down by valuation losses on securities caused by rising market rates. Selling, general and administrative expenses climbed 700 billion won and loan-loss provisions rose 300 billion won, further weighing on overall net profit.

Asset-quality indicators at domestic banks are also deteriorating. The quarterly delinquency rate bottomed out at 0.20 percent in the second quarter of 2022, has been climbing since and reached 0.56 percent in the second quarter of this year.

The bad-loan ratio similarly rose from 0.38 percent in the third quarter of 2022 to 0.63 percent in the second quarter of this year. Analysts attribute the trend to the expiration of COVID-19-era financial support programs and the cumulative burden of high interest rates, which have eroded the repayment capacity of both corporate and household borrowers.

The Korea Institute of Finance said banks' net interest margins could widen further as market rates rise, and the Bank of Korea's upward revisions to its economic growth outlook suggest profitability in the banking sector may improve going forward. The institute cautioned, however, that the consistent rise in both the delinquency rate and the bad-loan ratio since mid-2022 remains a concern.

Corporate debt-servicing capacity is also weakening. Among domestically incorporated non-financial companies subject to external audits, the share with an interest coverage ratio below 100 percent — meaning operating profit does not cover interest expenses — rose from 38.5 percent in 2024 to 39.9 percent last year.

The outstanding balance of household credit reached 2,019.8 trillion won at the end of the second quarter of this year, surpassing 2,000 trillion won for the first time in history. If tighter household debt management restricts banks' retail lending, they will need to turn to corporate loans to sustain earnings — but in a rising-rate environment, the interest burden on companies grows as well, potentially expanding the risk of loan defaults.

"Domestic banks need a stable earnings base to effectively carry out productive finance and inclusive finance," the report said, recommending that banks pursue rigorous risk management, expand overseas operations, improve credit assessment capabilities and develop new revenue streams in the current high-rate environment.


attom@heraldcorp.com