COVID-19 Puts Korean Financial Industry at a Complete Standstill Crisis... Economy's 'Lifeline' Faces Severe Risk (Comprehensive)

Financial Leaders Buy Back Shares... Stock Prices Drop Sharply Despite Support Efforts
Signs of Bad Loans from Self-Employed Raise Red Flags for Bank Asset Soundness
Frozen Consumer Sentiment Hits Credit Card and Insurance Companies Hard

[Asia Economy Reporter Kangwook Cho] As the prolonged COVID-19 pandemic continues to impact the real economy in various sectors, concerns are growing that even the financial industry, the 'lifeline' of our economy, could fall into crisis. While heads of domestic financial holding companies are attempting to boost stock prices through share buybacks, the decline in stock prices is deepening, and the possibility of a 'domino collapse' involving financially vulnerable companies and low-income households is being raised, triggering red alerts for asset soundness management in the banking sector. Additionally, the frozen consumer sentiment has inevitably worsened the profitability of credit card companies, and insurance companies are also facing the threat of mass bankruptcies due to negative margins and limits on returns from managed assets.

According to the financial sector on the 13th, among the seven financial holding companies listed on the domestic stock market, more than half?four CEOs?have repurchased their own shares this year. The most active in share buybacks is Sohn Tae-seung, Chairman of Woori Financial Group. Chairman Sohn purchased 5,000 shares through on-market transactions yesterday. This is his second purchase since buying 5,000 shares on January 6, the first trading day of the year. Kim Jung-tae, Chairman of Hana Financial Group, bought 2,000 shares on February 5; Kim Tae-oh, Chairman of DGB Financial Group, purchased 10,000 shares on the 4th; and Kim Ji-wan, Chairman of BNK Financial Group, acquired 21,800 shares on the 6th.

The urgent need to defend stock prices amid the spread of COVID-19 has driven these actions, but the effect has been disappointing. The stock price decline of financial holding companies has exceeded 30% this year, more than twice the drop of the KOSPI during the same period. Overseas IR (Investor Relations) events planned for stock price support at the beginning of the year have also come to a complete halt. With the uncertainty surrounding overseas business approvals, the roadmap to strengthen global competitiveness, represented by the 'New Southern Strategy,' is inevitably facing setbacks.

While stock prices are hitting bottom, warning signs are also detected in the asset soundness of core affiliates, namely banks. As of the end of last year, self-employed debt approached 338.5 trillion won, and among low-income self-employed individuals earning less than 30 million won annually, the proportion of long-term delinquent borrowers who have failed to repay loans for over 90 days increased from the 1% range at the end of 2018 to 2.2% by the third quarter of last year, clearly indicating signs of insolvency. Real estate debt, including mortgage loans, surpassed 2,000 trillion won as early as September last year. The government's expanded financial support requests for small and medium-sized enterprises and the self-employed due to the COVID-19 crisis also add to the burden. With the 'new three lows era' of low growth, low inflation, and low interest rates, the insolvency of companies and households is increasing, showing signs of potentially spreading to financial distress.

The cooling consumer sentiment casts a deep shadow of recession over the domestic market. In fact, last month, the total personal credit card approval amount of eight full-service card companies?Shinhan, Samsung, KB Kookmin, Hyundai, BC, Lotte, Woori, and Hana?decreased by 45% compared to the previous month. Moreover, card companies are struggling with a surge in customer refund requests. The 'advance payment receivables,' where refunds are paid to merchants instead of customers, have recently surged, but if small and medium-sized merchants go bankrupt, recovery becomes uncertain. The biggest issue is the collection of funds from airlines, which have a high proportion of bonds issued secured by credit card payments. According to Korea Credit Rating, as of the 24th of last month, the proportion of credit card sales receivables in the outstanding balance of airline fare bond ABS (Asset-Backed Securities) issued by Korean Air and Asiana Airlines was 1.01 trillion won (75.7%) for Korean Air and 548 billion won (71.5%) for Asiana Airlines.

The insurance industry, which relies heavily on face-to-face sales, has been hit directly. According to the industry, as of November last year, the initial insurance premiums generated through face-to-face channels such as agents accounted for 5.3669 trillion won, or 98% of the total, for life insurance companies. Non-life insurance companies also have about 87% of sales through face-to-face channels. However, due to fears of infection, people are avoiding meetings with others, making performance deterioration inevitable. Insurance companies plan to expand 'untact' (contactless) insurance sales, but the timeline for its establishment remains uncertain. The insurance industry is already facing a crisis as negative margin impacts from ultra-low interest rates and limits on returns from managed assets coincide with the COVID-19 outbreak, raising fears of a wave of bankruptcies.

A financial sector official expressed concern, saying, "As the shock from the prolonged COVID-19 crisis appears throughout the real economy, the financial market, which forms the foundation of the industry, is also showing accumulated fatigue." He added, "There is growing fear that the financial industry, the lifeline of the economy, could be swept up in a 'perfect storm'?a massive economic crisis caused by multiple adverse factors converging."

This content was produced with the assistance of AI translation services.