Delinquency Rates Worsen... Savings Banks Unable to Accelerate Sale of Non-Performing Loans

The delinquency rate of savings banks shows no signs of declining. The sale of delinquent loans in the market, which the financial authorities allowed the industry to manage the delinquency rate of savings banks, has been sluggish for nearly three months. Meanwhile, it is pointed out that the loan access for ordinary people is becoming increasingly restricted.

Delinquency Rate Rises Due to Restrictions on Selling Delinquent Loans

According to the savings bank industry on the 25th, the delinquency rate of savings banks for the second quarter of this year, to be announced at the end of this month, is expected to be in the mid-5% range. The delinquency rate in the first quarter was 5.1%, the highest since the end of 2016 (5.83%), and it is expected to worsen further. A representative of a large savings bank said, "The delinquency rate is not in a situation where it can improve compared to the first quarter," adding, "The second quarter figure has slightly increased."

The reason why the delinquency rate of the savings bank industry is not falling despite strengthened soundness management this year is that the sale of delinquent loans is virtually blocked. Savings banks have mainly lowered delinquency rates by selling delinquent loans to loan companies or private collection agencies, but since 2020, the financial authorities have restricted sales only to the public institution Korea Asset Management Corporation (KAMCO). The intention was to prevent excessive collection on increased loan receivables, but savings banks judged that it was better to hold delinquent loans than to sell them to KAMCO at prices lower than the market price, which instead acted as a factor increasing the delinquency rate.

Opened to Private Sales, but Effectiveness 'Questionable'

In June, the financial authorities expanded the buyers of delinquent loans to five private securitization specialists (Woori Financial Group, Daishin, Hana, Kiwoom F&I, and KAMCO), but even this is not progressing quickly at the practical level. The biggest obstacle is that the five companies selected as buyers have no experience in purchasing unsecured personal delinquent loans. Unlike secured loans, unsecured delinquent loans require detailed analysis of delinquency period, delinquent amount, and borrower characteristics, but due to lack of experience, evaluation expertise is low and the period for determining loan prices inevitably takes longer.

A senior official of a non-performing loan (NPL) investment company said, "Most NPL investment companies do not have sufficient personnel to manage unsecured delinquent loans," adding, "Additional external outsourcing fees are incurred, making it highly likely that savings banks cannot meet the desired prices." This means that this method is not suitable for selling unsecured delinquent loans.

Regarding this, a Financial Services Commission official said, "We judged that selling to the five securitization specialists is better from the perspective of protecting financial consumers, but since there has been no progress, we will listen to any difficulties and consider improvement measures."

While the purchase of delinquent loans remains sluggish, the loan threshold for ordinary people is gradually rising. Savings banks are reducing loans to low-credit borrowers with poor repayment ability to manage soundness. According to the Korea Federation of Savings Banks, as of this month, the number of savings banks supplying household credit loans (with transaction amounts of 300 million KRW or more) is 28, down six from 34 a year ago. Meanwhile, the number of savings banks providing credit loans to low-credit borrowers with credit scores below 600 decreased from 26 in August 2022 to 16 in August this year.

[Image source=Yonhap News]