🚨 Banks' Revenue Structure Innovation

Today Korean Economic News for Beginners | 2025.07.28

0️⃣ Moving Away from 'Interest Games' to Corporate Loans & Asset Management

📌 After 'Interest Business' Criticism, 4 Major Financial Groups Speed Up Changes with Corporate Loans & Non-Interest Income

💬 As President Lee Jae-myung strongly criticized mortgage-focused 'interest business', the 4 major financial groups are seriously working on changing their revenue structure. Major financial groups like KB Financial, Shinhan Financial, Hana Financial, and Woori Financial are planning to greatly expand corporate loans on a monthly basis from the second half and speed up strengthening fee income from asset management and investment sectors. Hana Bank announced plans to increase corporate loans by 1 trillion won every month, while KB Financial said fee income is expected to exceed 1 trillion won this year. Woori Financial also set a goal to raise non-interest income ratio to 30% by expanding comprehensive financial services through insurance company acquisition.

1️⃣ Easy Understanding

Banks are moving away from their traditional method of 'lending money and collecting interest' to create new revenue models. While there's government pressure, this is mainly an effort to change their business approach to match the changing financial environment.

Until now, Korean banks mainly made profits by lending money to individuals using their homes as collateral and collecting interest. This is called 'mortgage loans', and during times when house prices kept rising, it was a good business with low risk and stable profits.

But recently, President Lee Jae-myung criticized this method as 'interest business' or 'interest games', which changed the situation. The criticism was that banks only increased personal loans but didn't properly supply funds to companies, so they weren't helping economic development.

So banks are moving in new directions. First is greatly increasing corporate loans. This means they will provide much more funding so companies can expand their business and invest. For example, Hana Bank announced it will increase corporate loans by 1 trillion won every month.

Second is increasing 'non-interest income'. This means instead of simply lending money and collecting interest, they make money through asset management services, investment consulting, insurance sales, etc., by collecting fees. For example, they manage customers' assets and receive management fees, or help with fund and stock investments and receive brokerage fees.

These changes are important for several reasons. First, if they only depend on loan interest, their profits can drop significantly when interest rates fall or loan demand decreases. But if they have various income sources, they can run their business more stably.

Also, increasing corporate loans helps the entire economy. When companies can easily get funding, they can increase investments, create jobs, and help the economy grow.

Essentially, this is an attempt by banks to transform from simple 'lending companies' to comprehensive 'financial service companies'.

2️⃣ Economic Terms

📕 Interest Income vs Non-Interest Income

Interest income means the net profit banks get from lending money after subtracting the interest they pay to depositors.

• This is the core of traditional bank revenue, coming from the difference between loan rates and deposit rates (interest margin).
• Non-interest income is revenue from fees, asset management services, insurance sales, etc.
• Advanced country banks have 30-40% non-interest income ratio, but Korea is around 20%.

📕 Mortgage Loans

Mortgage loans are loan products where people borrow money by providing their house as collateral.

• Since there's collateral, banks can make stable profits with low risk.
• Over 70% of Korean banks' household loans are mortgage loans.
• It's good business during rising house prices, but becomes risky when the real estate market slows down.

📕 Corporate Loans

Corporate loans are loans that companies or businesses take for operating funds or investment capital.

• Higher risk than personal loans but directly contributes to economic growth.
• Divided into small business loans and large corporate loans, each with different characteristics.
• The government wants banks to increase corporate loans to contribute to economic activation.

📕 Asset Management Services

Asset management services are financial services that professionally manage customers' assets.

• Includes fund sales, portfolio construction, investment consulting, etc.
• Makes profit by receiving management fees or performance fees from customers.
• Demand is rapidly growing due to aging population and income increases.

3️⃣ Principles and Economic Outlook

✅ Background of Financial Groups' Revenue Structure Change

• Government policy changes and market environment changes are leading banks' revenue structure transformation.

  • First, government policy pressure became the direct trigger for revenue structure transformation. President Lee Jae-myung has criticized banks' mortgage-focused business as 'interest business' several times since taking office. He particularly pointed out that "banks only increase personal loans but are passive about corporate investment, so they don't help economic growth." Accordingly, financial authorities are also pressuring banks to increase corporate loan ratios and strengthen real economy support. Actually, the Financial Services Commission announced it will check banks' corporate loan performance monthly from the second half of this year.

  • Second, real estate market slowdown is reducing the attractiveness of mortgage loans. Banks preferred mortgage loans because collateral value was stable due to rising house prices. But recently, as the real estate market slows down, this attractiveness is decreasing. Especially as Seoul and metropolitan area apartment prices show declining trends, the risk of collateral value decline is growing. Also, government real estate policies are strengthening regulations on mortgage loans, increasing banks' need to find new revenue sources.

  • Third, the end of the low interest rate era raises questions about the sustainability of traditional interest income models. Interest rates rose sharply after COVID-19, but long-term interest rate volatility is expected to increase. Depending only on interest income means profits can be greatly affected by interest rate changes. In contrast, non-interest income like asset management or investment services can be relatively stable and sustainable revenue sources. Advanced country banks have already transformed their business models in this direction for this reason.

• Banks' revenue structure transformation is the result of external pressure and internal needs combined, signaling fundamental changes in Korea's financial industry.

✅ Meaning and Challenges of Corporate Loan Expansion

• Let's look at the impact bank corporate loan expansion will have on the entire economy and challenges that need to be solved.

  • First, corporate loan expansion is expected to directly contribute to real economy activation. Hana Bank's plan to increase corporate loans by 1 trillion won monthly means 12 trillion won of additional funds will be supplied to companies annually. This will support companies' facility investment, R&D, business expansion, etc., positively affecting economic growth. Especially when small and medium companies are having difficulty raising funds, bank loan expansion will be very helpful. Also, startups and innovative companies will be able to raise funds more easily, expected to contribute to creating new growth engines.

  • Second, risk management is a key challenge in the corporate loan expansion process. Corporate loans have higher risk compared to personal loans. This is because loan recovery can become difficult depending on company management conditions or market environment changes. Especially during economic downturns, companies' bankruptcy risk increases, which can lead to bank losses. Therefore, banks need to build thorough credit evaluation and risk management systems while increasing corporate loans. They need to prepare differentiated loan screening standards by industry and size, and strengthen follow-up management.

  • Third, professional workforce training and system improvement are necessary for corporate loan expansion. Personal loans are mainly screened based on collateral or credit scores, but corporate loans require comprehensive analysis of business plans, financial conditions, market outlook, etc. This requires workforce with specialized knowledge by industry, and corporate analysis systems need to be advanced. Also, since small and medium companies often lack financial information, alternative credit evaluation methods need to be developed. Recently, corporate credit evaluation models using big data or AI technology are also gaining attention.

• Corporate loan expansion is an important policy to increase Korea's economic growth potential, but to succeed, risk management and expertise strengthening must be supported.

✅ Non-Interest Income Strengthening Strategy and Outlook

• Let's analyze financial groups' non-interest income expansion strategies and their success possibilities.

  • First, asset management service expansion is the core driver of non-interest income increase. KB Financial's expectation of fee income exceeding 1 trillion won this year is because the asset management sector has grown significantly. As we enter an aging society, demand for retirement fund management is increasing, and more customers are interested in investment due to income increases. Banks are providing customized portfolio construction, professional investment consulting, tax optimization services, etc. to meet this demand and receiving management fees. Especially private banking (PB) services for high-net-worth individuals can apply high fee rates, making them profitable.

  • Second, revenue diversification through comprehensive financial service platform construction is underway. Like Woori Financial's plan to increase non-interest income ratio to 30% through insurance company acquisition, banks are trying to provide comprehensive financial services covering insurance, securities, asset management, etc., beyond simple deposit and loan business. This way, they can generate various fee income from one customer and build closer customer relationships. Using digital technology to provide services through online platforms while reducing service provision costs and increasing customer convenience is also an important strategy.

  • Third, workforce structure reorganization and digital transformation are essential for non-interest income expansion. The workforce structure needs to change from traditional counter business focus to consulting and advisory focus. Instead of employees who simply receive deposits and execute loans, experts who can analyze customers' financial situations and recommend optimal financial products are needed. Also, AI and big data should be used to provide customized services by customer, and digital asset management services like robo-advisors should be introduced. These changes are difficult to achieve in a short time, but are necessary investments for long-term competitiveness.

• Non-interest income strengthening is an important strategy that will determine the future of Korea's banking industry, but to succeed, comprehensive innovation in workforce, systems, and culture must be supported.

4️⃣ In Conclusion

The 4 major financial groups' revenue structure transformation efforts are creating a new turning point for Korea's financial industry. While government criticism of 'interest games' was the trigger, this can ultimately be seen as an inevitable movement for banks to improve their constitution to match the changing financial environment.

Corporate loan expansion is expected to directly contribute to real economy activation. Especially for small and medium companies and startups having difficulty raising funds, this will be very helpful. Presenting and executing specific goals like Hana Bank's monthly 1 trillion won corporate loan expansion plan is a positive signal.

Non-interest income strengthening strategy is also an important direction for long-term bank competitiveness improvement. KB Financial's fee income exceeding 1 trillion won, Woori Financial's 30% non-interest income ratio goal, etc. show Korean banks' will to transform to advanced country-type revenue models.

However, for these changes to succeed, several challenges must be solved. Risk management is key in the corporate loan expansion process. If loans are increased recklessly and bad debts occur, it could severely damage banks and the entire economy. Professional workforce training and credit evaluation system advancement must be supported.

For non-interest income expansion, workforce structure reorganization and digital transformation are essential. Moving away from simple deposit and loan business to customer consulting and asset management expert roles is a long-term challenge that cannot be achieved overnight.

Most importantly, customer-centered service improvement is important. Even if banks pursue revenue diversification, sustainable growth is only possible by providing real value to customers. If they only charge high fees without providing proper services, they will inevitably face customer rejection.

Ultimately, this revenue structure transformation will be an important opportunity for Korea's financial industry to evolve from the traditional model of 'lending money and collecting interest' to 'comprehensive financial service providers'. If successful, it will create a healthier and more competitive financial ecosystem, which will ultimately help customers and the entire economy.