Korean banks bulked up for 15 years but failed to build value, report finds

South Korean banks have spent the past 15 years expanding their balance sheets without translating that growth into higher corporate value, according to a new report.

Kim Woo-jin, a senior research fellow at the Korea Institute of Finance, released a report Saturday titled "Review and Improvement Directions for Domestic Banks' Growth Strategies," concluding that domestic banks "have continued to pursue growth laden with risk rather than stable growth grounded in risk management, and a strategy focused solely on expansion has limits when it comes to enhancing bank value."

The report found that domestic banks posted average annual asset growth of 6.19 percent between 2010 and 2025, the period following the global financial crisis — outpacing the country's average nominal GDP growth rate of 4.52 percent over the same period.

Private-sector lending by domestic banks also reached 160.3 percent of GDP in 2024, far exceeding the OECD member-country average of 68.0 percent.

Yet asset expansion has not translated into higher corporate value. The four major domestic banking groups had an average price-to-book ratio of 0.68 and a return on assets of 0.64 percent at the end of 2025, compared with averages of 2.32 and 1.03 percent, respectively, among comparable global banking groups.

Kim attributed the gap to the absence of an advanced management system that balances risk and profitability. He warned that an excessive focus on earnings and balance-sheet growth may boost short-term profits but can amplify bad debt when economic conditions deteriorate.

The report recommended that banks reorient their management strategies toward raising return on risk-weighted assets, allocating capital efficiently by weighing operating profit against risk-weighted assets and concentrating on assets that generate returns commensurate with their risk.

To achieve this, the report identified four priorities: spreading a risk-management culture throughout the organization, identifying new revenue sources, restructuring low-yield businesses and overseas assets, and improving board governance.

"Key performance indicators and the evaluation and compensation systems of sales organizations also need to be restructured to prioritize profitability over asset growth," Kim said. "A sustainable growth strategy can only be established when the board, management and employees all cooperate to improve the organization's overall management system."