South Korea: A Banking & Finance Overview

Korea entered 2025 with uncertainties created by continuing global geopolitical tensions and shifting global trade policies of its major trading partners. However, Korea has maintained a resilient macroeconomic environment notwithstanding these headwinds.

Monetary policy remains moderately restrictive, and the Bank of Korea has held the base rate at 2.50% at its November 2025 meeting. The rates are likely to stay in the mid-2% range if growth and inflation follow paths currently anticipated by the Bank of Korea.

The combination of stable interest rates, controlled inflation and gradual economic recovery has created a more favorable environment for banking sector in Korea, particularly for corporate lending. Banks and regulators are continuing to suppress household credit growth, so corporations are likely to remain as the main driver of credit growth at large banking groups in South Korea. This trend is likely to be bolstered by continuing efforts of large corporate groups to divest non-core assets to achieve optimum capital allocation for its group. Korean companies and institutional investors are also continuing selected outbound acquisitions, particularly in critical technologies, which are often funded in both KRW and foreign currency loans and bonds. These divestitures and selective offshore investments are expected to result in moderate rebound in M&A activities (which fell sharply in 2024).

On-shore financing in the Korean lending market continues to be dominated by major domestic commercial banks and securities houses, which tend to favor club deals. Conversely, international banks tend to lead cross-border financings that involve a foreign currency tranche and currency hedging. Foreign bank branches in Korea, however, are becoming increasingly competitive in Won denominated domestic financings in sectors such as renewables and data center projects, particularly when transactions involve one or more foreign parties.

Overall, Korean financing document terms remain lender-friendly when compared to documents seen in the United States or European market, with tighter covenants, lower allowable leverage, stricter use-of-proceeds protections and limited interest rate step-downs. LMA or APLMA documentation format is largely accepted for cross-border lending transactions in Korea.

The Financial Investment Services and Capital Markets Act of Korea was amended in 2021 to allow Korean collective investment vehicles – funds formed by licensed asset managers in Korea – to make loans to corporations. These funds have been most visible in real estate financings and are used in various real estate capital stack, including senior, mezzanine and junior tranches. The Korean private credit market, however, may grow beyond the real estate sector, as global alternative fund managers have shown increasing interest in tapping Korean investor capital and domestic lending opportunities. Some global managers have recently partnered with domestic financial institutions to target such opportunities. Given the close relationship between the large corporates and Korean lending institutions in the Korean lending market, It is likely that private credit solutions will be most in demand in sectors where flexible, bespoke credit that does not rely on customary security package for lender protections can be used or where sponsors/borrowers are affiliates of global companies.