Savings Banks Manage Soundness Through Loan Recovery and Sales... Criticism of "Taking Away Umbrellas When It Rains" (Comprehensive)

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

[Asia Economy Reporter Song Seung-seop] It has been identified that the savings bank industry has launched a large-scale loan recovery operation since the COVID-19 outbreak. As non-performing loans increased significantly due to the economic downturn, they have essentially recalled the money that had gone out. While it is explained as an inevitable measure to improve soundness, criticism has arisen that it might be taking away the umbrella from financially vulnerable groups. Amid the financial authorities' pressure and the banking sector's intensified loan regulations, concerns are growing that tightening loans even in savings banks, which serve as a financial lifeline for ordinary people, could exacerbate financial difficulties for vulnerable groups.

According to data submitted by the Financial Supervisory Service to Representative 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, Aekyoon, 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 delinquent borrowers repay 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 increase is steep.

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

The institution with the largest amount of recovery and normalization was OK Savings Bank, which recorded 231.3 billion KRW as of 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 Aekyoon (29.1 billion KRW) and SBI (23.8 billion KRW). In the case of Sangsangin Savings Bank, the recovery and normalization amount, which had remained in the 10 billion KRW range 3 to 4 years ago, increased significantly to 101 billion KRW last year.

The amount of written-off and sold loan receivables is also on the rise. As of the first quarter of this year, the write-off scale of savings banks was 317.1 billion KRW. Considering the total write-off amount last year (963.8 billion KRW), it has already increased significantly. Write-off and sale are last-resort measures used when it is difficult to recover money through normal means. When the effectiveness 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.

Write-offs and sales also increase accordingly: "Inevitable for soundness management"

The institution that actively conducted write-offs and sales last year was SBI Savings Bank, which wrote off and sold 267.9 billion KRW. However, the overall scale of write-offs and sales has steadily decreased. Pepper Savings Bank recorded 230.3 billion KRW, the second highest, which is an increase of 62.7 billion KRW (37.4%) compared to the previous year. Compared to 2018, it surged by 675.4% (200.6 billion KRW).

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, president of the Financial Consumer Federation, pointed out, "The 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 a failure 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 it was an inevitable measure to improve soundness. A savings bank official explained, "Since the COVID-19 outbreak, loan maturities have been extended and interest payments deferred," adding, "Given the increased uncertainty, it was a measure to manage soundness."

It is also explained that the government's significant increase in disaster relief funds last year had an impact. Another savings bank official hinted, "Internal data shows that after the disaster relief funds were paid, loan applications decreased and self-principal and interest repayments increased," adding, "Many borrowers used the relief funds for living expenses and repaid money to reduce interest burdens."

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