Delinquency Rate Is Half That of the U.S., but Profitability Is Slashed in Half... 'Productive Finance' Still Has a Long Way to Go

Corporate Loan Delinquency Rate: Korea 0.6% vs. U.S. 1.34%

U.S. Outperforms in NIM and ROE...Unsecured Loans Make Up 30–40%

Domestic Banks Need to Expand Credit-Based Lending Beyond Collateral and Guarantees

Although the corporate loan delinquency rate of domestic banks is only about half that of U.S. banks, their profitability indicators also significantly lag behind. Experts point out that leaving behind the collateral- and guarantee-centered lending practices and actively managing credit loans and expanding investment to channel funds into the real economy—so-called "productive finance"—would also be advantageous for banks to expand their long-term profit base.

Domestic Banks’ Corporate Loan Delinquency Rate at 0.59% at Year-End—U.S. Commercial Banks at 1.34%

According to the Financial Supervisory Service on March 7, the corporate loan delinquency rate of domestic banks stood at 0.59% as of the end of 2025.

At the same time, the corporate loan delinquency rate of U.S. commercial banks was much higher than that of South Korea. According to data from the U.S. Federal Reserve, the delinquency rate for corporate loans at U.S. commercial banks was 1.34% at the end of 2025, more than double that of domestic banks.

This gap has persisted for a long time. The corporate loan delinquency rate for domestic banks was 0.41% at the end of 2023 and 0.5% at the end of 2024, while U.S. commercial banks recorded 1.02% and 1.27%, respectively, at the same points in time. A similar trend has continued over the past decade or so.

On the surface, it may appear that domestic banks are more capable of managing risk in loan operations than their U.S. counterparts, but in terms of profitability, U.S. banks far outpace domestic banks.

Profitability Indicators Clearly Differ Between Korean and U.S. Banks

The net interest margin (NIM) of U.S. banks was 3.3% as of the end of 2025. In contrast, domestic banks posted a NIM of 1.72% as of September 2025, significantly lower than that of the U.S. Return on equity (ROE) also showed a stark difference, with U.S. banks recording 11.82% at the same time, much higher than the 7.22% of domestic banks.

ATMs of major banks installed in downtown Seoul. Photo by Yongjun Cho jun21@

The profitability gap between Korean and U.S. banks stems from various factors, including interest rate differentials, non-interest income such as account maintenance fees and asset management fees, but differences in lending practices are also a major cause. U.S. commercial banks not only make collateralized or guaranteed loans, which have low risk of default, but also actively extend unsecured loans based on a company's cash flow and creditworthiness. Approximately 30–40% of all corporate loans are issued on corporate credit without collateral. Since credit loans often have higher interest rates than secured loans, this positively affects bank profitability. Banks supply funds to companies while accepting a certain level of risk, thereby increasing profitability.

In contrast, domestic banks tend to focus on loans secured by real estate or policy guarantees provided by Korea Credit Guarantee Fund or Korea Technology Finance Corporation. As of the third quarter of last year, about 85% of SME loans at the four major commercial banks—KB Kookmin, Shinhan, Hana, and Woori—were collateralized or guaranteed loans. The structure is centered on securing solid collateral or transferring default risk to external guarantee institutions. While differences in the structure and regulatory environment of financial markets, as well as the development of capital markets, make direct comparison difficult, it is also hard to deny that excessively risk-averse lending practices have constrained bank profitability.

In this context, the government is emphasizing productive finance to redirect funds previously concentrated in household lending into high-tech and strategic industries and to support the real economy. While banks have indicated they will align with this policy, analysts note that if overly conservative lending practices persist, the effectiveness of such policies will be limited. There are concerns that, as with previous administrations, efforts to strengthen the real-economy intermediary function of finance may once again fall short if only cosmetic changes are made.

An official in the financial sector said, "Banks must enhance their corporate credit assessment capabilities and strengthen their financial intermediary function by comprehensively analyzing the financial status, cash flow, technological capability, and business feasibility of companies in need of funding." The official added, "There is a need to move away from the traditional low-risk, low-return business strategy centered on household lending and collateral or guarantees, and adopt a lending strategy that accepts a certain level of risk." He emphasized, "Operating loans in a way that balances appropriate levels of risk and return will also help broaden the long-term profit base of banks."

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