Is the Exit of Small Savings Banks Becoming Visible?... Red Light for Survival of Dae-A and Dae-Won Savings Banks

Unusual 'Qualified Opinion' in Audit Report
Massive Deficits Raise Doubts About Corporate Viability
Small Savings Banks Shrink Further in Size

[Asia Economy Reporter Song Seung-seop] While the size of large savings banks is rapidly increasing, some small regional savings banks are effectively being pushed into a state of business suspension. As the overall industry experiences a boom due to the COVID-19 windfall, analysts point out that the shadows cast behind this prosperity are also deepening.

According to the financial sector on the 6th, Daea Savings Bank and Daewon Savings Bank received an unusual "qualified opinion" in their audit reports last year. A qualified opinion is an adverse opinion issued by an accounting firm when problems are found in a company's financial statements.

Daea Savings Bank's accumulated deficit amounts to 62 billion KRW, which is 3.5 times its assets. Misung Accounting Firm, the independent auditor of Daea Savings Bank, pointed out in the audit report, "This situation indicates the existence of significant uncertainty that may raise substantial doubt about the company's ability to continue as a going concern." This means that due to deteriorating profitability, it appears difficult to continue business operations in the future.

Daea Savings Bank's asset size shrank from 28.6 billion KRW in 2017 to 17.3 billion KRW, placing it among the lowest ranks out of 79 savings banks. The ratio of non-performing loans classified as fixed or below, which refers to loans overdue for more than three months relative to total loans, surged by 20.25 percentage points in one year to 49.20%. This figure far exceeds the industry average of 4.2%.

The auditor judged that the internal situation was more severe than the financial statements disclosed by management. Accordingly, the audit report stated, "The company may not be able to recover assets or repay liabilities through normal business processes," and "such facts were not sufficiently disclosed in the company's financial statements."

Daewon Savings Bank, in which Daea Savings Bank holds shares, also receives 'qualified opinion'... "Doubt about going concern ability"

Daewon Savings Bank, in which Daea Savings Bank holds shares, also received a qualified opinion. Donghyun Accounting Firm, the responsible auditor, pointed out Daewon Savings Bank's continuous operating losses and stated, "Considering the financial condition and business characteristics, the implementation of business normalization through capital expansion plans and paid-in capital increase is uncertain." Furthermore, it added, "There may be significant doubt about the ability to continue as a going concern, and these facts were not properly disclosed in the financial statements."

Daewon Savings Bank also has an accumulated deficit of 53.3 billion KRW, more than four times its total assets (11.6 billion KRW). The loan-to-deposit ratio of only 7.73% is particularly concerning. The loan-to-deposit ratio is the amount of loans divided by the amount of deposits. Typically, large savings banks manage this ratio around 100%. This indicates that new loans are hardly being issued.

Financial authorities are closely monitoring the situation but are unlikely to take preemptive measures. A financial authority official explained, "The company has effectively stopped new business and is managing remaining assets," adding, "There are no regulations that allow authorities to intervene just because new business is not actively pursued, so we are currently monitoring the situation."

As the management conditions of lower-tier savings banks worsen, the gap between companies is widening. While the total assets of all savings banks increased by 54% from 59.5998 trillion KRW to 91.986 trillion KRW over the past three years, the bottom 10 banks by asset size only increased by 0.96%, from 1.2066 trillion KRW to 1.2182 trillion KRW.

An official from a savings bank said, "It is true that small savings banks are finding it increasingly difficult to survive," and predicted, "If this polarization continues, more savings banks may close one after another."

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