1. The economies of Japan and South Korea are dominated by banks. Both countries have created a complex financial structure, including a well-established banking industry at their heart that supports economic operations. However, both countries’ banking sectors have previously faced crises such as the Asian Financial Crisis (mostly in South Korea), the Japanese economic slowdown, and the financial crisis of 2007-08 (both). While the Bank of Japan (BOJ) approved the quantitative easing (QE) monetary policy and lowered interest rates to manage the crises, the Bank of Korea (BOK) pursued interest and financial restructuring as well as banking system digitization to overcome the crises. Covid-19 has disrupted the normal operation of banks, and the central banks and governments of both countries have implemented a variety of monetary and other measures to mitigate its economic and financial consequences.

   2. This study aims to identify and assess the health of domestic banks in Japan and South Korea for the Covid-19 ex-ante and interim periods. Several important variables, i.e., portfolios of assets and liabilities, asset productivity, stockholders' equity, profitability, and operating efficiency, have been included to evaluate the health of their banks. This compari-son of health metrics for 2010 to 2020 could help identify changes or shifts in the banking sector of Japan and Korea. The study has used ex-ploratory and descriptive methodologies to undertake qualitative and quantitative evaluations of important bank health indicators in the ex-ante and interim periods of Covid-19. It also used a hybrid method to produce research goals and arguments, including a framework based on what was already known in the field.

   3. Japanese banks are divided into four clusters, i.e., City Banks, Regional Banks I, Regional Banks II, and Trust Banks. The City Banks and Trust Banks clusters feature the largest banks, while the other clusters include smaller regional banks with a regional banking concentration. Despite being a large financial institution, Japan Post Bank is not considered a commercial bank in Japan. In Korea, Commercial and specialized banks are the two categories of banks. National and local banks make up the domestic commercial banks. The principal business of special banks is banking too.

   4. Throughout the timeframe of our investigation, the BOJ and BOK de-ployed monetary policy measures to influence bank conditions. In April 2013, the BOJ used an easy money policy, or QE, for the second time under Abenomics to combat chronic deflation and the rolling-recession effects of the 2007-08 GFC. Under QE-2, which is continuing, the BOJ has been influencing financial markets through interest rates, loan and fund support programs, and market purchases of assets of various du-rations. Starting in January 2016, the BOJ announced a negative interest rate of -0.1 percent on all new deposits. As a response to Covid-19, the BOJ gave institutions extra financial help at a low-interest rate of 0.1 percent and continues to purchase ETFs, J-REITs, JGBs, corporate bonds, etc. Due to QE-2 asset purchases, the BOJ’s balance sheet has grown by more than $5 trillion. BOK, for its part, used the bank rate as a primary policy tool to influence the money supply through bank lend-ing in the 2010s to mitigate the effects of the GFC of 2007–2008. The key interest rate was reduced from 5.25 percent in the third quarter of 2008 to 2.75 percent in the first quarter of 2013. Simultaneously, the sec-tor underwent structural restructuring to boost digitization. However, BOK adopted a more flexible monetary policy approach in response to the poor domestic economic development caused by the Covid-19 epi-demic. BOK also raised the limit on the Bank Intermediated Lending Support Facility to ₩35 trillion and made the Corporate Bond-Backed Lending Facility (CBBLF) a safety net for businesses, banks, and non-bank financial organizations.

   5. Figures show that the total assets of Japanese banks increased continu-ously, albeit at varied rates, from 2010 to 2019, never falling below 2 per-cent. The increase in bank loan amounts, from ¥8 trillion in 2012 to ¥543.9 trillion in 2021, explains some of the banks’ asset expansion. The loan portfolio breakdown reveals increased bank engagement in the real estate and housing sectors. Real estate has the highest industry share of outstanding loans, accounting for roughly 81 percent of all bank loans in 2020. Before Covid-19, both new consumer and home loans fell. Overall, portfolios of commercial banks did not undergo any significant rebalancing after QE-2. Their stockholdings fluctuated, and corporate bond holdings decreased, but t stock holdings climbed. In contrast to the BOJ's expectations, banks saw a significant increase in JGB purchas-es in FY 2020–21. Except for deposits, the effects of QE-2 and Covid-19 on banks’ liabilities were minimal. Their loan-to-deposit ratio has worsened, with loans accounting for only 66.2 percent of deposits in 2021, a record high during the pandemic. Throughout the period 2011 to 2020, the asset growth lines of Korean domestic banks shifted fre-quently. On the other hand, bank assets have been increasing since 2017, with assets reaching ₩2,977.6 trillion in 2020, up 10.6 percent from 2019. Most of the growth in banks’ assets came from borrowers’ loans and securities holdings, presently hovering around 70 percent. Between 2011 and 2020, the loans stayed higher than the deposits. In 2020, the overall liabilities of banks in South Korea were larger than the country’s GDP.

   6. Japanese banks had relatively low net earnings against their assets in terms of productivity, resulting in a poor return on assets (ROA). The highest ROA for all clusters of banks, both individually and collectively, was recorded in FY 2013-14. However, their ROA dropped in 2016-17 and 2019-2020. Nevertheless, Japanese banks earned a much higher ROE than their ROA. However, in 2020–2021, the overall bank ROE increased to 3.96 percent. Since 2010, the ROE of Regional Banks I and II has been lower than that of other banks. For Korean banks, the high-est ROA was in 2011, at 0.81 percent, and the lowest in 2016, at 0.11 percent. Banks’ ROA dropped dramatically in 2019 and 2020. Korean banks’ return on equity peaked in 2011 (9.81 percent) and troughed in 2016 (1.37 percent). In the year 2020, Covid-19 had a low ROE of 5.54 percent.

   7. Japanese banks’ ordinary profits peaked at 7.39 percent in 2014 and have steadily declined. However, the operational profit data from 2015 to 2020 has formed a U-shaped curve, indicating recent improvement. At the same time, banks' net incomes were significantly lower than their op-erating profits. QE-2 is perceived to be the significant underlying factor for their low NIs. When Covid-19 was at its most disruptive, however, the rate of net income increased to 1.84 percent in 2020, up from 1.11 percent the year before. In contrast, Korean banks had a difficult year in 2016, with NI falling by 43.18 percent from the previous year. However, net income improved over the next two years. Nonetheless, their net in-come has fallen since 2018, declining to ₩11 trillion in 2020.

   8. The efficiency of Japanese banks has remained low for a long time. From 2011 to 2021, none of the Japanese bank clusters met even the less strict efficiency standard of 60%. Even though Covid-19 might the-oretically cut operational expenses, Japanese banks’ overall efficiency ra-tio in 2021 was 83.9 percent. We are constrained by the Korean banks’ operational efficiency data. However, available data for 2020, the year of the COVID-19 outbreak, shows that most of them maintained an effi-ciency ratio of 60% or less.

   9. Since 2012, Japanese banks have reduced the percentage of non-performing loans to total loans. Between 2012 and 2020, however, the ratio fell from 2.4 to 1.1 percent. Due to Covid-19, the NPL ratio went marginally up to 1.2 percent in 2021. At the same time, Korean banks had significantly lower NPL ratios than Japanese banks. All banks’ total NPL was 0.25 percent of their loans in 2020. Banks in Japan and Korea are well-capitalized, evidenced by their good CARs. However, Japanese banks are better positioned with a higher ratio of CAR. The net interest margins (NIM) index clearly shows that Korean banks do better than their Japanese counterparts. However, in 2019 and 2020, the profitability index of Japanese and South Korean domestic banks fell.

   10. Despite their differences, the study revealed that Korean domestic banks could sustain better health indicators than their Japanese counterparts for much of the study period. Banks in Japan are trying to maintain bet-ter financial health with the ultra-low interest rates imposed by the QE-2 monetary policy. During Covid-19, the profitability and efficiency of the sector have been adversely affected. In contrast, Korean banks had the advantage of higher interest rates. They maintained a better degree of ef-ficiency, while their low nonperforming loans provided them with man-agerial strength, though Covid-19 seems to have marginally impacted their efficiency, profitability, and performance.