Delinquency Rate of Large Savings Banks Doubles... Net Profit Also Decreases by 95%

The delinquency rate of large savings banks in the second quarter of this year has more than doubled compared to a year ago, raising concerns about their soundness. Net profit in the second quarter also nearly halved compared to the same period last year. However, the rate of decline has slowed compared to the first quarter, and a recovery trend is expected in the second half of the year.

Deterioration in Soundness, Non-performing Loan Ratio Also Up by 2.2%p

Analysis of the management disclosures of the top five savings banks by asset size (SBI, OK, Korea Investment, Welcome, Pepper) on the 4th shows that the average delinquency rate of these savings banks in the second quarter of this year was 5.1%. This figure is more than double the 2.5% recorded in the second quarter of last year. It also rose from 4.8% in the first quarter of this year, indicating a deterioration in soundness. Looking at the delinquency rates by savings bank, OK Savings Bank had the highest at 6.69%, followed by Pepper (6.05%), Welcome (4.62%), Korea Investment (4.13%), and SBI (4.1%).

Another soundness indicator, the non-performing loan ratio, is also in a serious state. The average for the five savings banks was 6.2% in the second quarter of this year, up 2.2 percentage points from 4.0% in the second quarter of last year. Welcome Savings Bank had the worst ratio at 7.58%, followed by Pepper (7.33%), OK (6.97%), SBI (4.69%), and Korea Investment (4.35%). Non-performing loans refer to loans overdue by more than three months out of total loans, and an increase in this figure means that the amount of bad loans that are difficult to recover has increased.

However, the BIS ratio, which shows the ability to withstand losses, has increased. The average BIS ratio of these banks in the second quarter of this year was 13.5%, up 2.1 percentage points from 11.4% a year ago. The BIS recommended ratio is 8%, and the higher it is, the greater the bank's ability to cover losses with its own capital.

The industry expects that once the sale of delinquent loans begins, soundness indicators will improve rapidly. A representative of a large savings bank explained, “Once the sale of delinquent loans is in full swing, the non-performing loan ratio and delinquency rate will improve quickly. Accordingly, risk costs, write-offs, and the size of loan loss provisions will decrease, leading to an increase in profits.” In June, financial authorities allowed the private sale of delinquent loans. The number of buyers, previously limited to Korea Asset Management Corporation (KAMCO), was expanded to five private securitization specialists (Woori Financial Group, Daishin, Hana, Kiwoom F&I, and E-Umco).

[Image source=Yonhap News]

SBI Net Profit Decreases by Nearly 80 Billion KRW, Korea Investment and Pepper Post Losses

Net profit nearly halved compared to a year ago. The combined net profit of the top five savings banks in the second quarter of this year was 10.2 billion KRW, down 180.5 billion KRW (94.7%) from 190.7 billion KRW in the same period last year. Industry leader SBI Savings Bank recorded the largest decrease, dropping from 86.3 billion KRW in the second quarter of last year to 6.8 billion KRW in the second quarter of this year, a decrease of 79.5 billion KRW. OK and Welcome Savings Banks also saw decreases of 24.4 billion KRW and 9.3 billion KRW, respectively, during the same period. Korea Investment and Pepper Savings Banks posted net losses of 10.5 billion KRW and 17.6 billion KRW, respectively.

The main reason for the decline or losses in net profit was the increase in interest expenses due to special high-interest deposit promotions at the end of last year. At that time, a rapid increase in the base interest rate triggered a competition to raise deposit interest rates not only among banks but also within the industry. The combined interest expenses of the five savings banks increased from 239.1 billion KRW in the second quarter of last year to 506.3 billion KRW in the second quarter of this year.

Interest income increased slightly. Their combined interest income in the second quarter of this year was 890.6 billion KRW, an increase of only 74.1 billion KRW compared to a year ago. This was due to a reduction in loan issuance to manage soundness as borrowers’ repayment ability declined amid a prolonged economic downturn at the end of last year. Another industry official explained, “Although interest income increased, the larger increase in interest expenses has worsened profitability.”