This Year, Savings Bank Loans Surge by 9 Trillion Won... Bank of Korea Urges "Enhancement of Loss Absorption Capacity"

[Asia Economy Reporter Kim Eunbyeol] It has been revealed that the amount of money borrowed from savings banks by domestic companies and individuals has surged by as much as 9 trillion won this year.

According to the Bank of Korea's Economic Statistics System on the 27th, as of the end of October this year, the total outstanding loans of domestic savings banks amounted to 74.3955 trillion won. This is an increase of 9.3451 trillion won compared to the end of December last year (65.0504 trillion won).

The outstanding loan balance of savings banks surpassed 60 trillion won in April last year and 70 trillion won in July this year, respectively. Then, in just three months, it exceeded 74 trillion won. Since the beginning of this year, loans from savings banks have increased by at least 300 billion won and up to 1.5 trillion won each month compared to the previous month-end. From July to October, there was an increase of over 1 trillion won for four consecutive months. If this pace of increase continues, the growth by the end of this year could exceed 10 trillion won.

It can be seen that loans from savings banks are increasing rapidly compared to other financial sectors. According to the Bank of Korea's Financial Stability Report, the average annual loan growth rate from January 2015 to September 2020 was highest for savings banks at 16.8%. This is higher than banks at 7.0% and mutual finance at 10.3%.

The significant increase in loans borrowed from savings banks this year was influenced by the steadily declining loan interest rates at savings banks.

According to the Korea Federation of Savings Banks, as of October, among 68 savings banks handling household secured loans, only 23 offered loans with interest rates of 15% or higher per annum. Among 35 savings banks handling household unsecured loans, all but one had average interest rates below 20% per annum.

With ongoing pressure from financial authorities to keep loan interest rates below 20% per annum and to increase mid-interest loans in the 10% range, as well as the Bank of Korea’s benchmark interest rate hitting an all-time low, these factors have contributed to the decline in savings bank interest rates.

The Bank of Korea stated in its Financial Stability Report, "If the economic downturn prolongs, the recent rapid increase in loans at savings banks could become a risk factor, so it is necessary to strengthen internal risk management systems and expand loss absorption capacity."

It added, "Particular attention should be paid to the rapid increase in non-performing loans related to project financing (PF) exposures, and the relatively weaker loss absorption capacity of some large savings banks and regional savings banks."

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