Savings Banks, Real Estate Delinquency Rate Exceeds 12%... "Helpless Against High Interest Rates and PF"

Delinquency Rate and Non-Performing Loan Ratio Both Exceed 9%
Provisions for Bad Debts... Deficit of 36.3 Billion KRW
Central Association to Promote Joint Sale of Bad Loans and Resolution Fund

The delinquency rate on real estate loans at the top 10 savings banks exceeded 12%. As the high-interest-rate environment continues and real estate project financing (PF) defaults become more pronounced, even the soundness of major institutions is deteriorating.

According to each savings bank on the 3rd, the delinquency rate on real estate loans (including construction and PF) at the top 10 savings banks by assets (SBI, OK, Korea Investment, Welcome, Aequan, Pepper, Daol, Shinhan, Sangsangin, OSB) stood at 12.46% as of the end of the first quarter of this year. This is a sharp rise of 4.84 percentage points from 7.62% at the end of last year. Among the top 10 savings banks, eight had real estate loan delinquency rates exceeding 10%. At the end of last year, only three savings banks had delinquency rates above 10%.

The highest real estate loan delinquency rate was at Sangsangin Savings Bank, which recorded 25.05%. For loans extended by Sangsangin Savings Bank to the construction sector, the delinquency rate exceeded 31%. Pepper Savings Bank’s delinquency rate surged by 5 percentage points in three months to 17.41%, and Welcome Savings Bank’s delinquency rate nearly doubled from the end of last year to 16.47%. In terms of the amount of delinquent real estate loans, OK Savings Bank had the largest amount at 397.9 billion KRW, followed by Korea Investment (278.4 billion KRW), Sangsangin (239.5 billion KRW), and Welcome Savings Bank (235.4 billion KRW).

The delinquency rate and non-performing loan ratio of the top 10 savings banks both exceeded 9%. The delinquency rate was recorded at 9.02% (arithmetic average), up 2.18 percentage points from the end of last year. This figure is close to the industry-wide delinquency rate of 9.2% at the end of 2015, when the aftermath of the savings bank crisis was still ongoing. The non-performing loan ratio rose 1.92 percentage points from the end of last year to 9.4%, with the size of non-performing loans (classified as doubtful or worse) exceeding 5 trillion KRW.

In preparation for defaults, large provisions were accumulated, worsening earnings. The top 10 savings banks posted a total loss of 36.3 billion KRW in the first quarter of this year. Industry leader SBI Savings Bank turned from a net profit of 3.7 billion KRW in the first quarter of last year to a net loss of 6.4 billion KRW in the first quarter of this year. Sangsangin and Pepper Savings Banks recorded losses of 38 billion KRW and 37.9 billion KRW, respectively. OK, Korea Investment, and Shinhan Savings Banks posted profits but saw net income decline by more than 50%.

The Financial Supervisory Service is expected to tighten control over savings bank delinquency rates by conducting a second round of on-site inspections. They will check delinquency management plans, implementation status, and PF default resolution for about 10 savings banks with high delinquency rates. The Korea Federation of Savings Banks is promoting joint sales to resolve 136 billion KRW worth of non-performing loans. Additionally, a second non-performing loan resolution fund of about 350 billion KRW will be established to normalize real estate PF.

An industry insider said, “The biggest reason for the rise in delinquency rates is the borrowers’ reduced repayment ability due to rising market interest rates,” adding, “The decrease in loan assets, which serve as the denominator when calculating delinquency rates, also contributed to the increase.” Another insider said, “The prolonged high-interest-rate environment and real estate market downturn have negatively affected earnings,” and added, “We plan to actively sell non-performing loans, so we expect a turnaround in performance going forward.”