Toss Insight, the financial management research institute of Toss, published a report on July 10 recommending that Korean banks prioritize risk-return balance management over growth as the industry faces diverging profitability and soundness trends. The report titled 'Banking Industry Outlook and Response Measures in an Era of Uncertainty' states that domestic banks should focus on managing trade-offs between profitability, soundness, and growth across macroeconomic scenarios. The recommendation comes as uncertainty in the banking management environment has expanded due to geopolitical risks, uncertainty in major countries' monetary policy paths, strengthened household debt management, and the recent stock market boom, making it difficult to assess future bank management conditions with a single baseline forecast.
Report Identifies No Uniformly Favorable Scenarios for Banks
The report analyzed that no scenario presents uniformly advantageous or disadvantageous conditions for banks. When interest rates rise and the economy expands, net interest income and loan growth benefit, but delinquency rates and default risks simultaneously increase as borrowers face higher interest burdens. Conversely, when interest rates fall and the economy slows, repayment burdens decrease somewhat, but banks' profitability and growth foundations may weaken. The report emphasizes that rather than evaluating the favorability of specific scenarios, banks should monitor balance changes among profitability, growth, and soundness in each situation and adjust capital and provision strategies according to scenario-specific sensitivities.
Internet Banks Face Greater Profitability-Soundness Trade-offs
The report identified that the structure of simultaneous profitability improvement and soundness burden appears more pronounced in internet banks. Internet banks have higher proportions of mid-to-low credit borrowers and personal credit loans, resulting in better profitability than general banks during rising interest rate periods, but also facing greater expansion in delinquency and loan loss costs as borrowers' repayment burdens increase. The analysis found that due to household loan-centered business structures and regulatory environments, internet banks face limitations in significantly expanding loan growth even during economic recovery phases.
Stock Market Rally Reduces Term Deposit Inflows by 600-930 Billion Won
The report identified the recent stock market boom's impact on bank deposits as a major risk factor. Analysis results showed that when KOSPI rises 1 percentage point over one month, term deposit growth slows for up to three months afterward. Based on February balances, deposit inflows were estimated to decrease by approximately 600 billion to 930 billion won. However, no significant changes were observed in demand deposits. This indicates that stock market strength manifests not as rapid deposit outflows but rather as reduced re-deposits of maturing term deposits and slower new inflows. The report emphasized that banks should develop segmented fund management strategies considering deposit maturity structures, re-deposit rates, and customer-specific interest rate sensitivity, rather than focusing solely on maintaining total deposit scale.
Research Models Three Scenarios Across Eight Variables for 2026-2027
The research team established three scenarios—baseline, optimistic, and pessimistic—for eight core variables including interest rates, growth rates, inflation, exchange rates, household and corporate loans, stock prices, and housing prices, targeting the period from the second half of 2026 through 2027. For each scenario, the team estimated banks' profitability, soundness, and growth indicators, analyzing not only average forecasts but also tail risks through probability distributions when conditions deteriorate. Toss Insight researchers stated that as uncertainty increases, banks' success depends not on how quickly they grow but on what risks they take and their capacity to withstand them, expressing hope that the report helps banks establish future plans and review risk-return balance.
FAQ
What did Toss Insight recommend in its July 10 banking report?
Toss Insight recommended that Korean banks focus on risk-return balance management rather than growth, as the industry faces diverging profitability and soundness trends across different macroeconomic scenarios.
How does stock market performance affect bank deposits according to the report?
When KOSPI rises 1 percentage point over one month, term deposit growth slows for up to three months, with deposit inflows decreasing by approximately 600 billion to 930 billion won based on February balances, though demand deposits show no significant change.
