Korean banks eye higher margins and up to 7% loan growth in 2027

Loan growth accelerated in the third quarter, but funding costs also rose faster.

South Korean banks are expected to see modestly higher net interest margins (NIMs) in FY2027 on asset repricing and higher loan growth, said CreditSights by Fitch Ratings.

Loan growth could accelerate to 5% to 7% on improving corporate demand and easing household lending limits, according to an October 2026 report.

However, fee income could become a key drag when compared to the high base set by FY2026.

Credit costs are likely to increase alongside higher interest rates, CreditSights said.

South Korean banks’ NIMs came under broad pressure in Q3 2026 and fell between 2 to 7 basis points compared to the previous quarter, the report said.

Funding costs rose faster than asset yields due to repricing of time deposits, higher wholesale funding costs, and outflows from low cost deposits, it added.

Loan growth accelerated in Q3 to between 3.3% to 4.7% year-to-date, lifted by corporate lending. Household lending also reportedly picked up due to easing of household loan growth limits in August, CreditSights said.

Fee income remained a key earnings driver of banks in the first nine months of 2026, although momentum slowed in Q3 compared to the first half of the year.