[Second-tier Finance Still Tense] ② Savings Banks Cutting PF Loans, But Delinquency Rates Remain 'Uncertain'

Analysis of Top 20 Companies' PF Loan Status
Last Year, 53% Compared to Equity Capital... Down 30%p from Previous Year
OK Savings, Largest PF Loan Scale, Delinquency Rate Up 2.5%p in One Year
Proportion of Bonds Delinquent 1-3 Months Also Doubled
Experts: "Savings Banks Must Endure by Extending Maturity of Non-performing PF Loans"

Savings banks strengthened their management by withdrawing from real estate project financing (PF) last year as the real estate market contracted. Unlike the securities industry, where PF loan delinquency rates are in double digits, savings banks have maintained single-digit rates. This is why the industry confidently claims that there will be "no second savings bank crisis." However, signs of deterioration are being detected in various places, making it impossible to simply smile. Experts point out that the most urgent task is to establish measures to prevent savings bank insolvencies from spreading into systemic risks.

Savings Banks Tighten the Reins on PF Loans

On the 26th, Asia Economy analyzed disclosure data from the top 20 savings banks by asset size and found that last year they reduced the proportion of real estate PF loans relative to their capital. It was 76% and 85% at the end of 2020 and 2021, respectively, but dropped to 53% by the end of last year. When the scale of PF loans relative to capital is large, the ability to absorb losses decreases accordingly. During the 2011 real estate PF-induced savings bank crisis, this ratio soared to 504.9%. As the construction industry weakened last year, savings banks appear to have strengthened risk management by expanding their capital. Professor Ko Seong-su of Konkuk University's Department of Real Estate said, "While the decline in new projects due to the real estate downturn since the second half of last year is a factor, it can be seen that savings banks have entered risk management."

Insolvency 'Currently in Progress'

The problem is that existing PF loan insolvencies are becoming more pronounced. According to data submitted by the Financial Supervisory Service to Rep. Yoon Chang-hyun of the People Power Party, the balance of real estate PF loans at savings banks increased from 9.5 trillion won in 2021 to 10.5 trillion won at the end of last year, and the delinquency rate also rose from 1.22% to 2.05%, an increase of 0.83 percentage points. Although this rate is low compared to securities firms with delinquency rates in the double digits, the rapid increase is raising concerns.

Specifically, among savings banks, the highest PF loan delinquency rate last year was at Sangsangin Savings Bank (5.03%, loan balance 471.2 billion won), up 3.24 percentage points from 1.79% the previous year. JT Savings Bank, although handling a smaller amount of 245.5 billion won, had the second highest delinquency rate at 4.97%. The top two in PF loan handling volume, OK (1.001 trillion won) and Korea Investment (961.4 billion won) Savings Banks, saw their delinquency rates jump significantly. OK Savings Bank's rate rose from 1.63% in 2021 to 4.09% in 2022, and Korea Investment Savings Bank's rate increased from 1.22% to 2.86% during the same period. Daol Savings Bank (540.5 billion won), ranked eighth in the industry, also rose sharply from 0.5% to 3.3%, and KB Savings Bank (278.6 billion won) increased from 0% to 3.37%.

The proportion of "watchlist loans," which are PF loans delinquent for more than one month but less than three months, is also on the rise among savings banks. The ratio of watchlist and substandard loans at 20 savings banks doubled from 0.15% in 2021 to 0.3% in 2022. This indicates that loans that were previously normal have entered the early delinquency stage, showing that PF loan insolvencies are beginning to emerge.

Experts Warn of Systemic Crisis... "Need to Extend Maturities to Hold On"

Experts are concerned that the deterioration of savings banks' soundness could lead to a systemic crisis in the financial market. During the past savings bank crisis, fears of PF insolvency triggered a bank run, causing a chain of savings bank failures. From July, savings bank deposits will be excluded from the default option (pre-designated management system) for retirement pensions, compounding the negative factors. Going forward, retirement pensions deposited in savings banks are likely to be re-deposited into other default option products upon maturity, making capital outflows inevitable. As of the end of last month, the balance of retirement pensions in savings banks stood at 29.9891 trillion won.

Professor Ko said, "If the real estate market recovers and funds start circulating again, the possibility of PF insolvency will decrease, so savings banks need to hold on until then," adding, "Savings banks need to extend loan maturities to prevent defaults at PF project sites." Kim Mi-ru, a research fellow at the Korea Development Institute (KDI), suggested, "It is necessary to gradually resolve the accumulated stress by cleaning up insolvent businesses while proactively establishing measures to prevent the risk from spreading to the financial system."

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