Bank Loans Tripled in 15 Years, but Profits Remain Flat...

The Korea Federation of Banks' Report on 'The Role and Profitability of the Banking Industry'

Over the past 15 years, the loan assets of the banking sector have tripled, but the scale of net income has remained in the 10 trillion won range.

According to the "Role and Profitability of the Banking Industry" report released by the Korea Federation of Banks on the 29th, domestic banks' loan assets increased about 2.5 times from 989 trillion won in 2007 to 2,541 trillion won in 2022. Equity capital also grew 2.6 times during the same period, from 96.8 trillion won to 256.9 trillion won.

On the other hand, net income remained stagnant. Net income, which was 15 trillion won in 2007, increased by only 24% to 18.6 trillion won in 2022. In 2016, net income even stayed at around 2.4 trillion won.

The trends in profitability indicators such as Return on Equity (ROE) and Return on Assets (ROA) are similar. In 2007, the banking sector's ROE was 14.6% and ROA was 1.10%, but last year they fell to 7.4% and 0.53%, respectively. This indicates that bank profitability is not keeping pace with the growth in assets and equity capital.

This level of profitability is also weak compared to major overseas banks. The average ROE and ROA of domestic banks over the past 10 years were 5.2% and 0.4%, respectively, which is about half or less compared to major countries such as the United States (10.2%, 1.5%), Canada (16.8%, 1.1%), and Singapore (10.8%, 0.9%).

The same applies when compared to other financial sectors. Looking at the 10-year average ROE by industry, the securities sector recorded 6.7%, the insurance sector 6.8%, and the non-financial sector 6.2%, all surpassing the banking sector. This inferior profitability also affects the stock prices of banks (holding companies). The Price-to-Earnings Ratio (PER) and Price-to-Book Ratio (PBR) of domestic banks stand at 6.75 times and 0.49 times, respectively, which are below those of securities and insurance companies as well as half the level of the KRX 100 (13.36 times, 1.09 times).

The Korea Federation of Banks stated, "To efficiently allocate resources and smoothly perform the essential role of banks in contributing to the stability of the financial market and the development of the national economy, it is necessary to stably secure and maintain sufficient funds and capital to prepare for external shocks." It added, "If banks find it difficult to secure sound profitability, they will not only be unable to respond to sudden external shocks but also become a factor that undermines the stability of the financial system."

This content was produced with the assistance of AI translation services.