Board of Audit and Inspection: "Measures Needed to Address Factors Undermining the Soundness of Postal Savings"

Inspection of Postal Savings and Insurance Financial Soundness Management System... "Post Office Insurance, Weak Financial Market Response Capability"

[Asia Economy Reporter Ryu Jeong-min] The Board of Audit and Inspection has released an audit report stating the need to establish appropriate measures to address factors undermining soundness that arise during the expansion of postal savings deposits.

On the 16th, the Board of Audit and Inspection announced the results of the "Inspection of the Financial Soundness Management System of Postal Finance."

According to the Board of Audit and Inspection, postal savings have a lower proportion of demand deposits compared to private banks, while the proportion of time deposits is higher, resulting in higher funding costs. Additionally, asset management is focused on securities, which reduces the stability of the profit structure, and they receive state support such as tax exemptions.

The Board of Audit and Inspection pointed out, "postal savings have a higher asset risk amount (total risk and interest rate risk) relative to profit size and capital level, which may cause soundness issues in crisis situations. In fact, the 2020 crisis situation analysis revealed cases that fell below soundness standards."

It was noted that the Korea Post Headquarters maintained high funding costs during the expansion of deposits, leading to a decrease in net interest income, and there is concern that expanding the proportion of high-risk assets (domestic stocks, overseas stocks, alternative investments) may weaken the ability to respond in crisis situations.

The Board of Audit and Inspection stated, "The Korea Post Headquarters needs to establish appropriate measures to manage factors undermining soundness that arise during the expansion of deposits, such as properly managing the higher funding cost levels compared to private banks."

Furthermore, postal insurance was found to have less capital compared to private insurance companies, making it vulnerable to rapid changes in financial market conditions.

The Board of Audit and Inspection pointed out, "In crisis situations, there may be liquidity problems due to insufficient liquid assets relative to liquid liabilities, and interest rate risk due to interest rate fluctuations was identified as a weakness of postal insurance," adding, "effective management measures to improve liquidity issues have not been established."

The Board of Audit and Inspection recommended that the head of the Korea Post Headquarters utilize these analysis results for postal finance risk management.