Arlene Sohn, assistant vice president and analyst at Moody's financial institutions group, speaks during a media roundtable in Seoul on Tuesday. (Choi Ji-won/ The Korea Herald) Moody's Ratings warned Tuesday that rising shareholder returns and policy-driven lending expansion could pressure Korean banks’ capital buffers, even as the country’s banking system remains broadly sound.The ratings agency said Korea’s corporate value-up campaign has lifted shareholder returns closer to global peers, while major financial groups have adopted clearer capital targets.“The value-up policy itself has positive aspects,” said Arlene Sohn, assistant vice president and analyst at Moody’s financial institutions group, during a media roundtable in Seoul.She noted that major financial groups have set common equity tier 1 ratio targets at around 13 percent on average, calling the level “solid.”But Sohn warned that pressure on bank capital could rise if earnings contributions from nonbank affiliates weaken and banks are forced to raise dividends to maintain shareholder returns.Moody’s also said government-led efforts to expand productive and inclusive finance could shift lending away from lower-risk mortgages toward corporate loans, small businesses and lower-credit borrowers, increasing risk-weighted assets and weighing on capital and profitability.Sohn noted that Korean banks’ shareholder returns, once below global peers, have risen sharply. Japanese banks’ dividend payout ratios stood at around 40 to 50 percent several years ago, compared with Korean banks’ 20 to 30 percent at the time, she said.Moody’s described South Korea as tightly regulated by global standards, particularly in household lending controls, but said the strict oversight also reflects strong government willingness to support the banking system during periods of stress.“We evaluate Korea as a high-support system,” Sohn said.The agency added that the recent stock market rally and won volatility have had limited impact on bank liquidity and capital ratios.Still, Sohn said Korean banks’ structural weaknesses remain profitability and liquidity, citing their loan-heavy business models and relatively small liquid-asset buffers compared with many global peers.Moody’s in February revised its outlook on Korea’s banking system to stable from negative, citing expectations for stronger growth driven by AI-related semiconductor exports and fiscal expansion.But Sohn cited currency volatility, US tariff uncertainty and weakness in regional housing and commercial real estate markets as lingering risks for the sector.