[Loan Default Warning] Savings Banks' Credit Loans of 28 Trillion Won with 2 Trillion Won in Defaults at 'Risk Level'

Overdue Non-Performing Loans Fixed for More Than 3 Months Reach 2 Trillion Won
Delinquency Rate for Individual Business Loans Soars

The probability of insolvency in secondary financial institutions such as savings banks is increasing. Unsecured loans like personal credit loans or personal business loans are particularly serious. According to data received on the 1st from the Financial Supervisory Service by the office of Kim Sung-joo, a member of the National Assembly's Political Affairs Committee from the Democratic Party of Korea, personal credit loans at savings banks have reached a critical risk level.

Rapid Increase in Non-Performing Loans at Savings Banks

As of the first quarter of this year, the outstanding balance of personal credit loans at savings banks was 28.7 trillion KRW. Among these, non-performing loans classified as fixed or below that have been overdue for more than three months reached 2 trillion KRW. This corresponds to a fixed or below non-performing loan ratio of 7%. In the first quarter of 2021, the fixed or below non-performing loan ratio was only 4.5% (loan balance was 22 trillion KRW, fixed or below non-performing loans were 1 trillion KRW), indicating a rapid deterioration in the situation.

For personal business loans, the delinquency rate for principal and interest repayments overdue by more than a month has surged. The loan balance in the first quarter was 23.4 trillion KRW, with a delinquency rate of 5.2%. Until the second quarter of last year, the loan balance was 24 trillion KRW and the delinquency rate was only 1.8%, but the delinquency rate jumped significantly in less than a year. After COVID-19, support for self-employed individuals was cut off and the economy worsened, causing delinquency rates to soar. A savings bank official said, "The main customers of savings banks, who are low to medium credit borrowers, have faced increased debt repayment burdens since the end of last year due to rising interest rates, and accordingly, delinquency rates and fixed or below non-performing loan ratios have also increased."

Trying to Put Out the Fire Quickly

As the risk of insolvency grows, savings banks are trying to put out the fire quickly. They have stopped issuing additional loans. The balance of personal credit loans peaked at 30 trillion KRW in the third quarter of last year but has been declining since. Personal business loans also increased to 24.5 trillion KRW during the same period but have since been reduced. The goal is to minimize risk by decreasing loans to low to medium credit borrowers. According to the Korea Federation of Savings Banks, the volume of mid-interest rate loans handled by savings banks in the second quarter of this year was 1.6752 trillion KRW, which is half compared to 3.3755 trillion KRW in the same period last year. Mid-interest rate loans target borrowers in the lower 50% of credit scores.

Another reason for caution is that increasing loans now would actually result in negative spreads. At the end of last year, savings banks aggressively attracted deposits by offering high interest rates, which increased the interest expenses they must pay to customers. In this situation, aggressive loan marketing would be self-destructive.

They are also working hard to clean up non-performing loans. Savings banks have been requesting financial authorities to expand the channels for selling personal delinquent loans beyond just Korea Asset Management Corporation (KAMCO). Accordingly, earlier this month, the Financial Services Commission decided to increase the number of specialized non-performing loan sale investment companies to five. In the past, KAMCO’s purchase prices were too low, making savings banks reluctant to sell non-performing loans. With more buyers, price competitiveness will improve, allowing non-performing loans to be disposed of as quickly as possible.

Assemblyman Kim Sung-joo said, "It is positive that savings banks, facing insolvency risks, are trying to reduce loans and sell non-performing loans, but on the other hand, the problem lies with low to medium credit borrowers who have been pushed out even from savings banks. If they cannot borrow money here either, the number of ordinary people resorting to illegal private loans or becoming credit delinquents will increase."

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