South Korea savings banks struggle to replace loan income

The clearest example is credit cards. A savings-bank-branded card launched with help from card companies was meant to generate commission income and draw in deposit customers, but usage was so weak that card issuers began exiting the arrangement. The last remaining tie-up, with Hana Card, is set to end next August. Check cards have done little better. Last year, savings-bank check-card spending totalled 171 billion won, and more than 90% of that was handled by just two large lenders, leaving most smaller institutions with little benefit.

That matters because savings banks have been pushed to diversify precisely as loan margins come under pressure. First-half interest income from loans fell 5.8% from a year earlier to 3.926 trillion won, underscoring how dependent the sector still is on a business line that is losing momentum. At the same time, another round of rate increases could lift funding costs again, squeezing net interest margins further.

Insurance sales, or bancassurance, are not filling the gap either. Industry participants say the revenue from commissions is too small relative to the cost of building a sales network and maintaining the staff and systems required to sell the products effectively. That leaves even regulators’ push to let large savings banks issue their own debit and prepaid payment instruments as more of a structural option than a near-term profit fix.

For investors, the story is about earnings quality and the limits of diversification in a sector already exposed to funding-cost risk and weaker loan demand. Larger savings banks with more scale may still have some room to capture payment-related fees, but the economics look poor for smaller players. The bear case is that the sector remains trapped in a low-growth, low-margin model with limited noninterest income. The bull case is that a handful of larger institutions can eventually use payments and fee businesses to widen their customer base, but the latest evidence suggests that path will be slow and expensive.

The immediate takeaway is that South Korea’s savings banks may continue to face a profitability squeeze unless loan demand recovers or regulators open more meaningful revenue channels. Until then, diversification looks more like an aspiration than a working business model.