South Korean banks are projected to record a moderate improvement in net interest margins (NIMs) in FY2027, supported by asset repricing and stronger lending activity, according to CreditSights, a Fitch Ratings subsidiary.
Loan growth is expected to accelerate to between 5% and 7%, driven by recovering corporate demand and the relaxation of restrictions on household lending, an October 2026 report stated.
However, fee-based revenue could face pressure due to the high comparison base established in FY2026. CreditSights also expects credit costs to rise as interest rates increase.
South Korean banks experienced widespread pressure on their NIMs in the third quarter of 2026, with margins declining by 2 to 7 basis points compared with the previous quarter, the report noted.
Funding expenses increased faster than asset yields, reflecting the repricing of time deposits, higher wholesale borrowing costs and withdrawals from low-cost deposit accounts.
Meanwhile, lending activity gained momentum in the third quarter, with year-to-date loan growth reaching between 3.3% and 4.7%, largely supported by increased corporate borrowing. Household lending also reportedly improved following the easing of loan growth restrictions in August, CreditSights said.
Fee income remained an important contributor to bank earnings during the first nine months of 2026, although growth momentum weakened in the third quarter compared with the first half of the year.
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