Banking industry in South Korea - statistics & facts
South Korea is known for its well-developed financial system, which has undergone remarkable quantitative and qualitative development after the 1997 Asian financial crisis. Bank consolidation in the early 2000s and the subsequent rise of financial holding companies were accompanied by significant growth in banks' total assets and numbers of employees. The further opening of the financial sector has also attracted more and more foreign investors and financial institutions to the country. Moreover, the financial soundness of South Korean banks, as measured by the capital adequacy ratio (CAR), has steadily improved.
The main source of income for South Korean banks has traditionally been the interest they receive on various loans to companies and individuals. Non-interest income accounts for a relatively small share. However, given the low interest rates in recent years and growing competition in the banking sector, domestic banks have started to gradually increase their non-interest income. For example, they have taken various measures, such as expanding abroad or extending services into areas such as asset management, telecommunications, and food delivery services.
Having been gradually forced to close their branches in recent years, traditional banks have expanded their online and mobile banking services and launched better and more customer-friendly apps. How traditional banks will deal with increasing digital competition and to what extent digital banks can and will replace traditional banks will be another interesting aspect in the development of the South Korean banking sector.
Profitability of South Korean banks
South Korea's banking sector consists of six national and regional banks each, three digital banks, five government-affiliated specialized banks, and 35 foreign bank branches. KB Kookmin Bank, Shinhan Bank, Hana Bank, and Woori Bank are among the largest commercial banks in terms of total assets. Following the outbreak of the COVID-19 pandemic, domestic banks' net income and net interest margin (NIM) declined due to increased loan loss provisions, but an upward trend is discernible.The main source of income for South Korean banks has traditionally been the interest they receive on various loans to companies and individuals. Non-interest income accounts for a relatively small share. However, given the low interest rates in recent years and growing competition in the banking sector, domestic banks have started to gradually increase their non-interest income. For example, they have taken various measures, such as expanding abroad or extending services into areas such as asset management, telecommunications, and food delivery services.
Digital competition
Digitalization is another keyword for the banks' innovation efforts. South Korea’s mobile banking industry has grown rapidly over the last few years. Accordingly, the entry of large fintech companies and digital banks into the banking sector has put enormous pressure on traditional banks. For example, Kakao Bank, one of the first digital banks in South Korea, has quickly become not only one of the most popular banks in South Korea but also one of the leading digital banks in Asia.Having been gradually forced to close their branches in recent years, traditional banks have expanded their online and mobile banking services and launched better and more customer-friendly apps. How traditional banks will deal with increasing digital competition and to what extent digital banks can and will replace traditional banks will be another interesting aspect in the development of the South Korean banking sector.
