- Published 2026.11.03 08:43
First-half ROA of 0.4% trails the five major commercial banks
Self-employed business loans surge to 17.7% of total, heightening risk
Credit cost control and independent credit competitiveness urgently needed
K bank's AA+ credit rating, the second-highest grade, was not achieved solely on its own profitability and asset soundness. According to a credit rating report on K bank disclosed by NICE Investors Service on Nov. 2, the internet-only bank's final rating was raised one notch from its standalone rating of AA, reflecting the possibility of government support in a crisis. This means that, like conventional banks, internet-only banks are recognized for their policy importance within the financial system and the effect of a public safety net. But it also means that, once the shield of potential support is removed, significant vulnerabilities remain in its independent fundamentals.
In fact, K bank's profitability indicators already show a clear gap with existing commercial banks. In the first half of this year, K bank's return on assets (ROA) fell to 0.4%, down 0.2 percentage point from 0.6% a year earlier. That is below the 0.6% average of the five major commercial banks over the same period. It posted a net profit of 60.1 billion won (about $44 million) in the first half, maintaining its surplus streak, but a decline in gains from loan sales and funding cost management amid interest rate volatility have both come under scrutiny.
A bigger structural burden is found in credit costs. K bank's ratio of loan-loss provisions to total loans reached 1.1%, 5.5 times the 0.2% average of the five major commercial banks. Its substandard-or-below loans (NPL) ratio also came to 0.6%, above the commercial bank average of 0.4%. Its provision coverage ratio stands at 261.3%, giving it apparent loss-absorbing capacity on the surface, but the fact that the cost of setting aside reserves against bad loans is overwhelmingly larger than at commercial banks is a key factor eroding mid- to long-term profitability.
The rapid shift in its asset portfolio is also cited as a potential risk. K bank has sharply increased loans to self-employed business owners to circumvent household loan regulations and sustain growth. The balance of K bank's loans to self-employed business owners surged nearly 2.9-fold from 1.151 trillion won (about $849 million) at the end of 2024 to 3.302 trillion won (about $2.4 billion) at the end of June this year. The share of such loans in total credit also jumped from 7.1% to 16.7%, and in third-quarter results announced on Oct. 30, the balance rose to 3.6366 trillion won (about $2.7 billion), pushing the share of corporate loans to 17.7%. With the prolonged economic downturn heightening the risk of multiple-debt defaults among self-employed business owners, the rapid growth in loans to them is highly likely to translate into additional credit costs down the road.
On top of that, managing the share of loans to mid-to-low credit borrowers, a regulatory obligation inherent to internet-only banks, is another structural burden. As of the end of June this year, the share of unsecured credit loans to mid-to-low credit borrowers at K bank stood at 30.8%. Mid-to-low credit borrowers are the most vulnerable to a deterioration in debt-servicing capacity caused by prolonged high interest rates, and are considered a time bomb directly linked to rising delinquency rates. The structure of having to keep supplying credit to relatively low-credit borrowers to meet policy demands acts as a clear constraint on raising its standalone credit rating.
Of course, the solid capital buffer secured through its listing is a sturdy pillar defending its credit profile. In addition to the 249 billion won (about $184 million) in fresh funds raised during this year's initial public offering, the entire 725 billion won (about $535 million) in past investments by financial investors was counted as regulatory capital, causing its common equity tier 1 (CET1) ratio to surge 5.7 percentage points from 12.4% at the end of last year to 18.1% at the end of June this year. Its Bank for International Settlements (BIS) total capital ratio also came to 20.0%, above the 17.6% average of the five major commercial banks.
However, it is worth noting the criteria NICE Investors Service presented as triggers for a rating downgrade review. The credit rating agency said it would consider lowering the rating if the NPL ratio persistently exceeds 2.0% due to factors such as deterioration in household loans, or if the possibility of government support in a crisis weakens. Conversely, it set maintaining an ROA of 1.0% or higher as a condition for an upgrade to AAA. With its ROA currently hovering around 0.4%, K bank is closer to having to defend against downward pressure from expanding loan-loss provisions on self-employed business loans and credit to mid-to-low credit borrowers than to reaching the upgrade trigger.
Ultimately, this credit rating assessment has left K bank with homework rather than relief. Thanks to the possibility of public support stemming from its banking license, it secured the solid AA+ grade, but if it cannot prove independent credit competitiveness without relying on that support, it will likely find it difficult to avoid the blade of a downgrade in a phase of worsening asset soundness. Whether it can curb the deterioration of its rapidly growing self-employed business loans and control credit costs for mid-to-low credit borrowers is expected to be the key indicator determining whether it can maintain its credit rating going forward.
(Dollar figures are approximate, converted automatically at 1,000 won = $0.738, the rate on Nov. 8, 2026.)
※ This article is an AI translation of the Korean original published by Korea Credit News; it was checked by automated quality guards and published by the English edition desk.
