Savings Banks, Massive Loan Cleanup Amid COVID-19 Impact... "Umbrella Snatching" vs "Soundness Management"

Q1 Savings Banks Recovery and Normalization Amount 202.1 Billion KRW
Reached 1.0017 Trillion KRW Last Year, Highest in 5 Years
Sales and Transfers Also Rapidly Increasing to 317.1 Billion KRW

[Asia Economy Reporter Song Seung-seop] It has been confirmed that the savings bank industry, a representative financial institution for the common people, has launched a large-scale loan recovery and normalization operation since the COVID-19 crisis. As the number of non-performing loans increased significantly due to the economic downturn, savings banks have recalled the money they had lent out. While there are claims that this was inevitable to improve soundness, criticism has arisen that it might be taking away the financial umbrella from vulnerable groups. Amid the financial authorities' pressure and the banking sector's intensified loan regulations, concerns are growing that the financial difficulties of vulnerable groups could worsen as savings banks, which serve as a financial lifeline for ordinary people, also show such behavior.

According to data submitted by the Financial Supervisory Service to Assemblyman Yoon Chang-hyun's office on the 30th, the total amount of loans recovered and normalized in the first quarter by 10 major savings banks (SBI, OK, Pepper, Welcome, Korea Investment, Accuon, Eugene, OSB, Moa, and Sangsangin) was 202.1 billion KRW. Recovery refers to the bank's action of reclaiming loans through repayment notices or other methods. If a delinquent borrower repays the money on their own, it is classified as normalization. Considering that the average annual amount recovered and normalized over the past five years was 729.7 billion KRW, the upward trend is steep.

Since the outbreak of COVID-19, the scale of recovery and normalization has been snowballing. The amount recovered and normalized last year reached 1.0017 trillion KRW, an increase of 159.9 billion KRW (18.9%) compared to 841.8 billion KRW in 2019. Compared to 514.4 billion KRW in 2016, it surged by 487.3 billion KRW (94.7%).

The savings bank with the largest amount of recovery and normalization was OK Savings Bank, which recorded 231.3 billion KRW at the end of last year. This is the largest scale since 2017, and in the first quarter, it recovered and normalized 69.7 billion KRW, far surpassing Accuon (29.1 billion KRW) and SBI (23.8 billion KRW).

Write-offs and Sales Also Increase... Industry Says "For Soundness Management"

The amount of written-off and sold loan receivables is also on the rise. As of the first quarter of this year, the scale of write-offs by savings banks was 317.1 billion KRW. Considering the total write-offs of 963.8 billion KRW last year, this is already a significantly increased level. Write-offs and sales are last-resort measures used when it is difficult to recover money through normal means. When the effect of non-performing loans is extinguished, it is considered a write-off; when sold to lending companies or debt collection agencies, it is considered a sale.

Some criticize that during the severe COVID-19 situation, the financial lifeline for ordinary people in need of funds was taken away. Jo Yeon-haeng, chairman of the Financial Consumer Federation, pointed out, "An increase in recovery scale can be seen as taking away an umbrella when it rains," adding, "If the loans are transferred to lending companies or collection agencies, the pressure and interest burden felt by borrowers inevitably increase."

There are also criticisms that high-risk loans were sold during the COVID-19 crisis or that borrower risks were not properly assessed during the initial loan process. This can be interpreted as failing to carefully evaluate the creditworthiness and repayment ability of vulnerable borrowers or small and medium-sized enterprises despite the COVID-19 situation.

The industry maintains that these measures were unavoidable for soundness improvement. A savings bank official explained, "Since the COVID-19 crisis, loan maturities have been extended and interest payments deferred," adding, "Given the increased uncertainty, this is a measure to manage soundness."

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