Da-A and Daewon Savings Banks Receive Qualified Opinion in Audit Report... Warning Signs of Expulsion (Comprehensive)

Unusual 'Qualified Opinion' in Audit Report
Massive Deficits Raise Doubts About Company's Going Concern
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, the shadows cast behind this prosperity are also deepening. The polarization between large and small companies is intensifying, raising concerns that small savings banks with poor capital bases may face a wave of closures.

According to the financial sector on the 6th, Dae-A 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.

Dae-A Savings Bank's accumulated deficit amounts to 62 billion KRW, which is 3.5 times its assets. Misung Accounting Firm, the independent auditor of Dae-A Savings Bank, pointed out in the audit report that "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 poor profitability, it appears difficult to continue business operations in the future.

Dae-A Savings Bank, based in Pohang, originated from Daewon Mutual Credit Union established in 1982. It was incorporated into the Dae-A Group in 2002. Daewon Mutual Savings Bank was acquired by Dae-A Savings Bank in 1998. It is known that new loan operations are currently suspended.

The asset size of Dae-A Savings Bank shrank from 28.6 billion KRW in 2017 to 17.3 billion KRW, placing it near the bottom among 79 savings banks. The ratio of non-performing loans (NPL ratio), which represents the proportion of loans overdue by more than three months 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 the internal situation to be more severe than the financial statements disclosed by management. Accordingly, the audit report stated, "The company may be unable 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, 100% owned by Dae-A Savings Bank, also received a qualified opinion. Donghyun Accounting Firm, the responsible auditor, pointed out that Daewon Savings Bank has continuously incurred 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." It added, "There is significant doubt about the company's ability to continue as a going concern, and these facts were not properly disclosed in the financial statements."

Daewon Savings Bank, also owned by Dae-A, receives 'qualified opinion'... "If polarization deepens, closures may follow"

Daewon Savings Bank's accumulated deficit also amounts to 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 lending is almost non-existent.

Financial authorities are closely monitoring the situation but are unlikely to take preemptive measures. Under the current Mutual Savings Banks Act, there are no provisions for taking special actions solely based on receiving an adverse audit opinion.

A financial regulator explained, "The company has effectively stopped new business and is managing remaining assets," adding, "There are no regulations allowing authorities to intervene simply because new business is not actively pursued, so we are currently monitoring the situation."

However, unlike past savings bank crises, severe consumer damage such as massive deposit losses is not expected. This is due to the industry's practice of keeping deposits within the protected range. An industry insider said, "Most people deposit up to 50 million KRW in savings banks to avoid losses," and "It is understood that the average amount deposited in the concerned company is only a few million KRW."

Meanwhile, as the management conditions of lower-tier savings banks worsen, the gap between companies is widening. Over the past three years, total savings bank assets increased by 54%, from 59.9998 trillion KRW to 91.986 trillion KRW, while the bottom 10 banks by asset size grew only 0.96%, from 1.2066 trillion KRW to 1.2182 trillion KRW.

There are concerns that small banks may eventually be acquired or shut down. Another savings bank official said, "It is known that the company was put up for sale, but it probably was not an attractive offer," adding, "It is true that small savings banks are increasingly struggling to survive." He predicted, "If this polarization continues, more savings banks may close one after another."

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