Savings Banks 1Q Loss of 154.3 Billion Won... Delinquency Rate Approaches 9%

Cause of Deficit: Decrease in Interest Income and Increase in Allowance for Bad Debts
Delinquency Rate and Non-Performing Loan Ratio Rise, Deteriorating Soundness
Central Association "Focus on Risk Management Over Profitability for the Time Being"

Savings banks recorded a net loss of 154.3 billion KRW in the first quarter of this year. The deficit streak continues following last year.

According to the Korea Federation of Savings Banks on the 29th, 79 domestic savings banks posted a net loss of 154.3 billion KRW last year. The deficit increased by 191.8% compared to the same period last year (-52.7 billion KRW). However, it decreased by 62.8% compared to the fourth quarter of last year (-415.5 billion KRW).

The savings bank industry cited a decrease in interest income and provisions for loan losses as the main reasons for the deficit. In the first quarter of this year, interest income was 2.486 trillion KRW, down 8.6% from the same period last year (2.7196 trillion KRW). This was due to a conservative approach to loan products and strengthened risk management through sales and write-offs, which reduced the scale of credit extension.

Total assets of savings banks in the first quarter of this year stood at 122.7 trillion KRW, down 3.1% from the end of last year (126.6 trillion KRW). Loan balances were recorded at 101.3 trillion KRW, a 2.6% decrease from the end of last year. Corporate loans and household loans shrank by 3.7% and 0.8%, respectively. Deposit balances also decreased by 3.2% to 103.7 trillion KRW, reflecting a reduced need for new fund-raising due to the decline in loans. Equity capital was 14.5 trillion KRW, down 1.4% from the previous year (14.7 trillion KRW). Although about 54 billion KRW was raised through capital increases, net losses caused a slight decrease.

Provisions for loan losses amounted to 1.2292 trillion KRW in the first quarter of this year. This is an additional 132.6 billion KRW set aside compared to 1.0966 trillion KRW in the first quarter of last year. The loan loss provision ratio was 112.99%, exceeding the legal standard (100%) by 12.99 percentage points. All savings banks exceeded the legal minimum loan loss provision ratio.

Asset quality indicators such as delinquency rates and non-performing loan ratios rose simultaneously. The delinquency rate for savings banks was 6.55% last year but surged by 2.25 percentage points to 8.8% in the first quarter of this year. The household loan delinquency rate increased by 0.24 percentage points to 5.25%, while corporate loan delinquency rose by 3.52 percentage points to 11%. The non-performing loan ratio was 10.32%, up 2.59 percentage points from 7.73% at the end of last year. The Korea Federation of Savings Banks explained, “The slowdown in economic recovery has weakened borrowers’ repayment ability, and the decrease in loans, which is the denominator for calculating delinquency rates, also negatively affected the rise in delinquency rates.”

The BIS (Bank for International Settlements) capital adequacy ratio, a measure of capital soundness, was 14.69%, up 0.34 percentage points from 14.35% the previous year. This is about twice the regulatory requirement of 7-8%. Despite the net loss in the first quarter, the BIS ratio increased due to strengthened risk management and a reduction in risk-weighted assets.

The Korea Federation of Savings Banks stated that although the macroeconomic environment, such as the delayed timing of interest rate cuts, negatively affected the business environment, both management stability and liquidity remain sound. This is because proactive measures were taken through capital increases and internal reserves of earnings, and the BIS ratio exceeds the legal minimum. Liquidity is also maintained stably through government support and industry self-help efforts. The available liquidity, including cash, deposits, and deposits at the Federation, amounts to about 15% of deposit balances, enabling independent response even in the event of a large-scale withdrawal crisis.

However, it is expected to take time to improve profitability. Difficult business conditions are expected to continue as the monetary tightening policy for price stabilization persists. Additionally, new regulations to enhance loss absorption capacity, such as the introduction of business feasibility evaluation criteria for real estate project financing (PF) loans, will be implemented. Accordingly, savings banks plan to focus their strategies on risk management rather than profitability improvement. The Korea Federation of Savings Banks predicted, “In the medium to long term, business performance will improve through stabilization of deposit interest rates, resolution of macroeconomic uncertainties, and enhancement of loss absorption capacity.”

They also explained that efforts will be made to stabilize delinquency rates downward. The Korea Federation of Savings Banks said, “We will establish a self-managed real estate PF liquidation fund of about 350 billion KRW in the second quarter, activate sales and auctions of distressed properties, and resolve non-performing loans. The second joint sale of delinquent loans from individual business owners is scheduled to be completed by the end of June.”

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