In the first half of this year, domestic banks saw their net profit decrease compared to the same period last year, while their delinquency rates and non-performing loan ratios rose.

Although interest income is expected to increase due to rising market interest rates, rising insolvency risks among corporations and households point to the need for tighter soundness management.

According to a report titled "H1 2026 Business Performance and Future Tasks of Domestic Banks" released by the Korea Institute of Finance today (September 19), the net profit of domestic banks in the first half of this year stood at 13.8 trillion won, down 900 billion won from the same period last year.

As interest-earning assets such as loan receivables increased and the net interest margin (NIM) widened due to rising market interest rates, interest income grew by 2.5 trillion won.

However, non-interest income decreased by 2.3 trillion won, dragged down by valuation losses on securities caused by rising market interest rates.

Selling and administrative expenses and credit loss provisions also increased by 700 billion won and 300 billion won, respectively, further reducing net profit.

Soundness indicators for the banking sector are showing a worsening trend.

The quarterly delinquency rate of domestic banks bottomed out at 0.20% in the second quarter of 2022 and shifted upward, recording 0.56% in the second quarter of this year.

The non-performing loan ratio also rose from 0.38% in the third quarter of 2022 to 0.63% in the second quarter of this year.

The report projected that the profitability of domestic banks could improve going forward, citing the likelihood of higher NIMs driven by rising market interest rates as well as upward revisions to the Bank of Korea's economic growth rate forecasts.

However, the upward trend in delinquency rates and non-performing loan ratios since mid-2022 remains a burden.

Among domestic non-financial companies subject to external audits, the proportion of firms with an interest coverage ratio below 100% increased from 38.5% in 2024 to 39.9% last year.

The outstanding balance of household credit also surpassed 2,000 trillion won for the first time in history, reaching 2,019.8 trillion won at the end of the second quarter of this year.

If household loans face restrictions, banks will need to secure profits through corporate lending; however, the report analyzed that the risks associated with corporate loans could also intensify amid an upward interest rate cycle.

The report suggested that "stable profit generation is necessary for domestic banks to smoothly carry out productive and inclusive finance," adding that "in an environment of rising interest rates, thorough risk management, expansion into overseas markets, improvement of credit assessment capabilities, and the discovery of new revenue sources are required."

(Photo: Yonhap News)