“Domestic banks have limitations in external growth… Must shift to ‘profitability relative to risk’”

Financial Research Institute report… Domestic bank PBR 0.68 times, ROA 0.64%, below global bank average

(Seoul = Yonhap News) Reporter Doheun Lee = It has been pointed out that domestic banks should move away from the quantitative growth strategy of increasing asset size and shift their management system to focus on risk management and profitability.

Kim Woo-jin, a senior researcher at the Korea Institute of Finance, said in a report on 'Domestic Banks' Growth Strategy Inspection and Improvement Direction' on the 10th, "Domestic banks have continued to pursue growth that involves risk rather than stable growth based on risk management, but a strategy that focuses solely on growth has limitations in enhancing the bank's value."

According to the report, the average annual asset growth rate of domestic banks from 2010 to 2025 after the global financial crisis was 6.19%, exceeding the domestic nominal economic growth rate of 4.52% during the same period.

The size of domestic banks' private sector loans in 2024 was 160.3% of gross domestic product (GDP), significantly exceeding the average of 68.0% for member countries of the Organization for Economic Co-operation and Development (OECD).

However, asset expansion did not lead to an increase in corporate value.

At the end of 2025, the average price-to-book ratio (PBR) of the four largest domestic banking groups was 0.68 times and return on assets (ROA) was 0.64%, which was lower than the averages of similar global banking groups of 2.32 times and 1.03%, respectively.

The report pointed to the lack of an advanced management system that considers risk and profitability in a balanced manner as the cause.

The explanation is that if you focus on expanding performance and top line, even if profits increase in the short term, insolvency may increase when the economy worsens.

The report then suggested the need to set a management strategy in the direction of increasing the return on risk-weighted assets (RoRWA).

This means that capital should be allocated efficiently considering operating profit compared to risk-weighted assets, and focused on assets that generate returns commensurate with risk.

Tasks for this purpose included spreading a risk management culture within the organization, discovering new revenue sources, rebalancing low-profit businesses and overseas assets, and improving the governance structure of the board of directors.

The report emphasized that the sales organization's key performance indicators (KPIs) and evaluation and compensation system need to be reorganized to emphasize profitability rather than asset growth, and that "a sustainable growth strategy can be created when the board of directors, management, and employees all cooperate to improve the overall management system of the organization."