[2023 National Audit] Bank Sector Loan Loss Provisioning Ratio at 226.4%

The provision coverage ratio against non-performing loans (NPLs) in the domestic banking sector was found to be 226%. Authorities are strengthening soundness management by requiring additional provisions and loan loss reserves, as the impact of the COVID-19 pandemic and rapid increases in benchmark interest rates raise the likelihood of an expansion in NPLs.

According to data on the "Status of Loan Loss Provisions in Domestic Banks" submitted by the Financial Services Commission to the office of Yoon Han-hong, a member of the National Assembly's Political Affairs Committee from the People Power Party, as of the end of the first half of this year, the NPLs of 20 domestic banks totaled KRW 10.5251 trillion, and the loan loss provisions set aside for these amounted to KRW 23.8289 trillion.

Loan loss provisions refer to the amounts financial institutions set aside to cover potential losses from loans and debts. For normal loans, provisions should reflect 0.5% (normal) to 1% (watch list), and for non-performing loans, 20% (doubtful) to 100% (estimated loss). Based on this, the provision coverage ratio of domestic banks was found to be 226.4%.

By bank, Korea Eximbank (383.4%), Korea Development Bank (315.2%), and NH Nonghyup Bank (286.6%) ranked highest in provision coverage ratios. Jeju Bank (120.8%), IBK Industrial Bank of Korea (147.3%), Jeonbuk Bank (153.0%), DGB Daegu Bank (161.3%), and sh Suhyup Bank (177.3%) were relatively lower ranked.

Among commercial banks, KB Kookmin Bank had the highest provision coverage ratio at 253.9%. Others such as Hana Bank (243.8%), Citibank (236.8%), SC First Bank (233.7%), Woori Bank (229.1%), and Shinhan Bank (206.2%) all exceeded 200%.

Regional banks and internet-only banks showed variation. Among regional banks, BNK Busan Bank (276.5%) and Kyongnam Bank (228.4%) exceeded 200%, while others fell below. Among internet-only banks, KakaoBank (229.3%) and Toss Bank (227.6%) exceeded 200%, but K Bank (184.4%) did not reach this level.

Including loan loss reserves, Hana Bank had the highest combined provision and reserve coverage ratio at 598.9%. Loan loss reserves refer to amounts accumulated when the provisions set aside fall short of regulatory standards. Authorities have recently introduced special loan loss reserve requirements, demanding banks to accumulate reserves due to potential latent risks in the financial sector caused by the COVID-19 pandemic and rising benchmark interest rates.

The total amount set aside as loan loss reserves by the 20 domestic banks was KRW 16.4979 trillion. Banks with high combined provision and reserve coverage ratios included Nonghyup Bank (517.1%), Woori Bank (511.1%), Kookmin Bank (501.2%), and Shinhan Bank (453.1%), while Jeonbuk Bank (220.8%), K Bank (225.1%), Daegu Bank (253.4%), and IBK Industrial Bank of Korea (255.5%) were relatively lower.

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