Delinquency and Funding Deterioration... Savings Banks and Mutual Finance See 7 Trillion Won Drop in Loans This Year

What to Do About Loans for Low to Medium Credit Borrowers

The loan balances of savings banks and mutual finance sectors have decreased by more than 7 trillion won since the beginning of this year. This is due to efforts to reduce loan assets and manage soundness in response to the rapidly rising delinquency rates this year. Inside and outside the industry, there are concerns about a loan cliff for medium- and low-credit borrowers as a side effect.

According to the Bank of Korea's Economic Statistics System (ECOS) on the 19th, the total credit of savings banks, mutual finance, credit cooperatives, and Saemaeul Geumgo as of the end of May was 791.358 trillion won. This is a 0.91% (7.247 trillion won) decrease compared to the end of last year (798.605 trillion won). This contrasts with the primary financial sector (banks), where total loans increased by 1% (21.496 trillion won) during the same period.

By sector, savings banks saw the largest decrease, down 3.57% (4.107 trillion won) to 110.921 trillion won. Next, Saemaeul Geumgo decreased by 1.74% to 198.133 trillion won, and mutual finance decreased by 0.07% (27.8 billion won) to 373.738 trillion won. Among these, only credit cooperatives recorded an increase of 0.84% (90.9 billion won) to 108.565 trillion won.

A customer is receiving consultation at the bank loan consultation desk. Photo by Jinhyung Kang aymsdream@

Although not yet reflected in the statistics, this trend has continued recently. According to the Financial Services Commission's recent announcement on the '2023 Household Loan Trends,' household loans in the secondary financial sector have continued to decline, with savings banks decreasing by 100 billion won and mutual finance by 1.8 trillion won.

The reduction in loan size by the secondary financial sector, including savings banks, is a response to the dual challenges of deteriorating soundness due to rising delinquency rates and worsening profitability due to increased funding costs. According to the Financial Supervisory Service, the delinquency rate of savings banks in the first quarter rose by 1.66 percentage points from the previous quarter to 5.07%. Saemaeul Geumgo's delinquency rate recently exceeded 6%. Although the overall delinquency rate of the mutual finance sector is relatively lower at 2.42%, it is significantly higher compared to banks (0.33%).

Increased funding costs are also cited as a major cause. Since savings banks and mutual finance sectors procure most of their required funds from general customers' deposits, a reduction in deposits inevitably leads to a reduction in loans. For example, the total deposits of the savings bank sector as of the end of May were 114.526 trillion won, down 4.8% (5.712 trillion won) compared to the end of last year (120.238 trillion won). Recently, the Saemaeul Geumgo bank run (large-scale deposit withdrawals) has heightened financial consumers' anxiety, and banks are raising deposit interest rates in response to rising bank bond yields, increasing pressure.

As savings banks and mutual finance reduce loans, some express concerns about a loan cliff for medium- and low-credit borrowers. A financial sector official said, "In the second half of the year, there are many difficult challenges such as the end of COVID-19 financial support for self-employed and small business owners and real estate project financing (PF) debt," adding, "Loans to medium- and low-credit borrowers, who carry high risks, will also become more difficult."

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