Savings Banks See Increase in Loan Amounts for Vulnerable Young Borrowers in Their 20s and 30s

Bank of Korea Financial Stability Report
Increase in Loans to Vulnerable Borrowers Aged 20-30 at Savings Banks from End-2019 to End-2022: 51.6%
Saemaeul Geumgo PF Loan Ratio Rises from 2.0% to 9.2%

The scale of loans to vulnerable borrowers, mainly among the youth, has increased at savings banks. The loan volume for real estate and construction sectors at savings banks and mutual financial cooperatives has expanded, leading to a decline in the overall soundness of loans. Credit risk concerns regarding these non-bank deposit-taking institutions are growing.

According to the financial stability report released by the Bank of Korea on the 21st, the volume of loans to vulnerable borrowers at savings banks increased by 32.5% by the end of last year compared to the end of 2019. Among these, the increase was largest for those in their 20s and 30s, rising by 51.6%. This was followed by those in their 60s and 70s (36.2% increase) and those in their 40s and 50s (19.8% increase).

The loan volume for real estate and construction sectors at savings banks and mutual financial cooperatives also expanded. In the case of Saemaeul Geumgo, the volume of real estate project financing (PF) loans increased by KRW 12.6 trillion (from KRW 2.9 trillion to KRW 15.5 trillion) from the end of 2020 to the end of 2022. The proportion of real estate PF loans in total loans jumped from 2.0% to 9.2%.

The situation is similar for savings banks. During the same period, the real estate PF loan volume increased by KRW 3.7 trillion (from KRW 6.9 trillion to KRW 10.6 trillion). The loan proportion also rose from 8.9% to 9.2%.

During the same period, the delinquency rate for real estate PF loans increased mainly at Saemaeul Geumgo (from 0.0% to 0.4%), while it slightly decreased at savings banks (from 2.3% to 2.1%).

The Bank of Korea analyzed, "Even if credit and market risks of non-bank deposit-taking institutions materialize, the possibility of these risks spreading into systemic risk is limited," adding, "Considering downside economic risks, stress tests showed that capital adequacy across all sectors exceeded regulatory standards even under negative scenarios."

When examining the risk of losses from credit and market risks at non-bank deposit-taking institutions spreading to other sectors, the rate was 1.2% as of the end of 2022, which was lower than the overall sector average of 6.6%.

Since the large-scale deposit withdrawal incident at Silicon Valley Bank in the United States last April, liquidity concerns regarding non-bank deposit-taking institutions have emerged. In response, the Bank of Korea advised, "The proportion of non-face-to-face deposits at savings banks has rapidly increased since the third quarter of last year," and cautioned, "Some savings banks rely heavily on non-face-to-face deposits or retirement pensions as funding sources, so they should be attentive to liquidity risks arising from deposit outflows."

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