South Korean banks' net profit in the first quarter edged lower this year as non-interest income fell. Valuation losses on securities expanded due to higher market rates. Interest income kept rising on loan growth and a higher net interest margin (NIM).

According to the Financial Supervisory Service's preliminary report on South Korean banks' first-quarter 2026 operating results released on Tuesday, their net profit for the quarter was 6.7 trillion won, down 300.0 billion won, or 3.9 percent, from 6.9 trillion won a year earlier.

Net profit at commercial banks rose 1.6 percent from a year earlier to 4.3 trillion won, helped by improved results at internet-only banks and regional banks. Net profit at specialised banks fell 12.3 percent to 2.4 trillion won. Net profit at internet-only banks jumped 45.3 percent to 300.0 billion won.

Banks' return on assets (ROA) fell 0.07 percentage point from a year earlier to 0.64 percent, and return on equity (ROE) dropped 0.89 percentage point to 8.68 percent.

Interest income rose 1.0 trillion won, or 6.4 percent, from a year earlier to 15.8 trillion won. Interest-earning assets such as loans increased 4.8 percent from a year earlier to 3,556 trillion won. The NIM also rose to 1.56 percent from 1.53 percent.

Non-interest income, however, fell 35.6 percent to 1.3 trillion won. Higher market rates drove securities-related profit down by 3.6 trillion won, pushing it into the red. The 3-year Korea Treasury bond yield rose 60.6 basis points to 3.557 percent at end-March from 2.951 percent at the end of last year.

Selling and administrative expenses rose 5.4 percent from a year earlier to 7.2 trillion won due to higher labour and other costs. Loan loss provisions fell 16.2 percent to 1.4 trillion won.

The watchdog said it plans to encourage banks to bolster loss-absorbing capacity so they can maintain soundness even in the event of unexpected shocks, given rising uncertainties at home and abroad. It also said it would keep urging banks to fulfil social responsibilities such as productive finance and inclusive finance based on solid profitability.