Interest Income Down↓·Bad Debt Expenses Up↑... Savings Banks Turn Deficit, Net Profit Decreases by 1 Trillion Won YoY

First Half Net Loss of 96.2 Billion Won Due to Decrease in Loan-Deposit Interest Rate Spread
Delinquency and Non-Performing Loan Ratios Also Rise
Worsening Slows Compared to Q1
FSS: "Efforts to Enhance Soundness Amid Economic Uncertainty in Second Half"

As deposit interest rates rise in the banking sector, the balance of savings and fixed deposits is increasing. The secondary financial sector is also consecutively raising fixed deposit interest rates. The photo shows Welcome Savings Bank in Jung-gu, Seoul. Photo by Jinhyung Kang aymsdream@

Savings banks recorded a net loss close to 100 billion KRW in the first half of this year. This represents a decrease in profit of about 1 trillion KRW compared to the previous year. The decline is attributed to reduced interest income due to a narrowing interest rate spread between deposits and loans, along with a significant increase in loan loss provisions. The overall loan delinquency rate also rose, and the ratio of non-performing loans classified as substandard or below increased. There are calls for efforts to enhance soundness in preparation for the possibility of increased domestic and external economic uncertainties.

According to the "2023 First Half Savings Banks Business Performance (Preliminary)" report released by the Financial Supervisory Service on the 28th, 79 savings banks operating as of the end of the first half recorded a total net loss of 96.2 billion KRW. This is a decrease of 991.8 billion KRW compared to the net profit of 895.6 billion KRW in the first half of last year.

The interest income decreased by 522.1 billion KRW due to the interest rate spread narrowing to 4.72 percentage points from 6.19 percentage points in the first half of last year, and loan loss provisions increased by 629.2 billion KRW. However, the deficit in the second quarter was 43.4 billion KRW, slightly less than the 52.8 billion KRW loss in the first quarter.

Major Profit and Loss Status of Savings Banks in the First Half of the Year (Provided by the Financial Supervisory Service)

Asset soundness also deteriorated. The total loan delinquency rate in the first half was 5.33%, up 1.92 percentage points from the end of last year. However, the increase slowed somewhat in the second quarter (+0.28 percentage points) compared to the first quarter (+1.65 percentage points). This is attributed to a reduction in new delinquencies and active resolution of delinquencies through sales and disposals.

Both corporate and household loan delinquency rates showed similar trends. The corporate loan delinquency rate was 5.76%, up 2.93 percentage points from the end of last year. However, the increase in the second quarter was 0.69 percentage points, less than the 2.24 percentage points rise in the first quarter. The household loan delinquency rate also rose by 0.38 percentage points to 5.12% compared to the end of last year but shifted to a downward trend during the second quarter.

The ratio of non-performing loans classified as substandard or below (loans overdue for more than three months) was 5.61%, up 1.53 percentage points from the end of last year. However, the increase in the second quarter was 0.49 percentage points, less than the 1.04 percentage points rise in the first quarter.

Although loan loss provisions increased significantly, the growth in non-performing loans exceeded this, causing the loan loss provision coverage ratio against non-performing loans to fall to 95.4%, down 17.9 percentage points from the end of last year. However, the provision coverage ratio against the required provision amount was recorded at 112.2%, exceeding the regulatory ratio of 100%.

The total assets of the 79 savings banks in the first half amounted to 134.3612 trillion KRW, a decrease of 3.1% (4.2321 trillion KRW) from the end of last year. Total loans also decreased by 4.9% (5.656 trillion KRW) to 109.3185 trillion KRW during the same period. Most of the reduced loans were corporate loans, which decreased by about 5.4 trillion KRW, while household loans decreased by only 300 billion KRW.

Equity capital increased by 3.6% (518.6 billion KRW) to 14.9822 trillion KRW compared to the end of last year. This is analyzed to be due to increased capital injections despite a reduction in retained earnings caused by net losses.

Meanwhile, the BIS (Bank for International Settlements) capital adequacy ratio stood at 14.15%, up 1.00 percentage point from the end of last year, maintaining a level above the regulatory ratio (8% for assets over 1 trillion KRW, 7% for assets under 1 trillion KRW). The loss absorption capacity is evaluated as sound. Risk-weighted assets decreased by 3.2% (3.7585 trillion KRW) from the end of last year due to a reduction in loans.

The Financial Supervisory Service expects the operating environment for savings banks to improve somewhat in the second half but plans to continue efforts to enhance soundness in preparation for the possibility of worsening domestic and external economic uncertainties. A Financial Supervisory Service official stated, "We will actively encourage savings banks to thoroughly manage asset soundness through expanded sales of non-performing loans and revitalization of self-debt restructuring," adding, "We plan to strengthen risk management through crisis situation analysis of savings banks and enhance loss absorption capacity by additional loan loss provisions and capital expansion."

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