Jeonbuk Bank weighed by large unsecured personal loans

Profitability may decline through 2026 due to declining loan yields.

Jeonbuk Bank has solid capitalisation and funding but faces weakening asset quality and profitability due to its large unsecured personal loans.

The South Korean bank has sought borrowers outside of Jeonbuk Province, its home region, which is experiencing population contraction and does not have a large manufacturing base.

Jeonbuk Bank targeted near-prime borrowers in metropolitan areas and tapped niche markets such as lending to foreign workers in Korea, according to Moody’s Ratings.

The bank now has a sizable exposure to unsecured personal loans, which amounted to 12.2% of its total Korean won-denominated loans as of 31 March 2025.

On a more positive note, the bank has stronger net interest margins (NIM) than its peers due to its higher margin unsecured personal loans. But this also meant higher credit costs and earnings volatility during an economic downturn, Moody’s said.

“We expect Jeonbuk Bank's profitability to decline over the next 12-18 months because of declining loan yields from decreasing market rates,” the ratings agency said.

Jeonbuk Bank should maintain good capitalization over the next 12-18 months, with a tangible common equity (TCE) to risk weighted assets (RWA) ratio close to 15%.

“We expect the bank's good internal capital generation to support its moderate annual loan growth at around 5%,” Moody’s said.