As banks restructure their profit model around corporate loans, competition for growth and earnings has intensified. At the same time, the burden on asset quality is rising quickly. With net profit rankings at major banks reshuffled in the first quarter, changes in loan portfolios are emerging as a risk factor.

In the first quarter, net profit at the five biggest banks was led by Shinhan Bank at 1.1571 trillion won, followed by Hana Bank at 1.1042 trillion won and KB Kookmin Bank at 1.1010 trillion won, the financial sector said on Thursday.

The gap among the top three banks was only about 3 to 50 billion won, creating an extremely tight contest. NongHyup Bank at 557.7 billion won and Woori Bank at 531.2 billion won formed the lower tier with a wide gap to the top three, and another key feature was Woori Bank again ceding fourth place to NongHyup Bank.

Non-recurring factors such as one-off costs and volatility in non-interest income played a major role. Event-driven costs including penalties, losses related to overseas businesses and provisions directly affected results, increasing ranking volatility. The financial sector sees a strong likelihood that the leading bank will continue to change by quarter this year as well.

Behind the performance race is also banks' strategy to expand corporate lending as they pursue "productive finance."

In the first quarter, corporate loan balances at the five biggest banks rose 3.82 percent from the end of last year to 865.2810 trillion won, while household loans fell 0.21 percent to 766.1577 trillion won. This showed a clear shift as banks cut household lending and moved their focus to corporate finance.

By bank, Shinhan Bank posted the most notable increase in corporate lending. As its household loans declined, its corporate loans rose 3.0 percent, the highest growth rate among major banks.

Hana Bank at 1.8 percent and KB Kookmin Bank at 1.2 percent also maintained steady growth. Woori Bank and NongHyup Bank likewise expanded corporate lending instead of household loans, but their increases were concentrated in loans to large companies.

In the first quarter, loans to large companies rose by more than about 5 percent, while loans to small and midsize businesses increased only in the 1 percent range. Some banks also saw loans to small and midsize businesses decline.

This is also seen as linked to risk management. Delinquency rates on loans to large companies were about 0.19 percent, while those on loans to small and midsize businesses were higher at around 0.9 percent and rising faster. For banks, given capital rules and the burden on asset quality, the structure leaves them little choice but to prefer relatively lower-risk loans to large companies.

The problem is that expanding corporate lending is leading to deterioration in asset quality indicators. In the first quarter, corporate loan delinquency rates rose from the previous quarter to 0.40 percent at KB Kookmin Bank, 0.36 percent at Shinhan Bank, 0.56 percent at Hana Bank and 0.61 percent at Woori Bank. The rising trend is increasing the burden of managing asset quality across the sector.

As banks continue to expand corporate finance in line with the government's productive finance stance, there are warnings that if loan quality management does not keep pace, the performance race could instead lead to greater risk.

A banking official said, "Expanding corporate lending is a trend driven by the productive finance stance, but if it coincides with an economic slowdown it could directly lead to higher delinquency rates," adding, "This year, asset quality management could be a key variable as important as the performance race."