Net Loss of 363.6 Billion KRW in Q1-Q3 This Year
Deficit Reduced by 25.8 Billion KRW from Previous Quarter
Delinquency Rate Increased by 0.37% to 8.73%
The savings bank industry reduced its deficit by generating over 25 billion KRW in profits in the third quarter of this year through proactive provisioning for loan losses. However, it was found that some savings banks, particularly those involved in real estate project financing (PF), are facing difficulties improving asset quality indicators due to delays in resolving non-performing projects.
According to the Korea Federation of Savings Banks on the 28th, the losses of 79 domestic savings banks amounted to 363.6 billion KRW in the first to third quarters of this year, an increase of 209 billion KRW compared to the same period last year (154.6 billion KRW loss). This was due to an increase in loan loss provisions by 257.2 billion KRW compared to last year, as the real estate market and economic recovery delays made asset quality management difficult.
However, in the third quarter of this year, the industry posted a profit of 25.8 billion KRW, reducing the deficit compared to the previous quarter (389.4 billion KRW loss). This was the result of a decrease in the amount of provisioning due to proactive loan loss reserve accumulation. The savings bank industry set aside 1.2 trillion KRW in reserves in the fourth quarter of last year and accumulated 1.2 trillion KRW, 1.1 trillion KRW, and 600 billion KRW respectively in the first to third quarters of this year.
Overall, asset quality deteriorated. As of the end of the third quarter this year, the delinquency rate was 8.73%, up 0.37 percentage points from the previous quarter. The household loan delinquency rate fell by 0.26 percentage points to 4.54% from 4.8% in the previous quarter, while the corporate loan delinquency rate rose by 1.11 percentage points to 13.03%. The ratio of non-performing loans classified as substandard or below was 11.16%, down 0.37 percentage points from 11.53% in the previous quarter.
During the same period, total assets stood at 122 trillion KRW, down more than 16 trillion KRW from 138.2 trillion KRW at the end of the third quarter last year. Compared to the previous quarter (120.1 trillion KRW), it increased by about 2 trillion KRW, but corporate loans decreased by 3.2% (1.7 trillion KRW), and the total loan balance decreased by 1.1% (1 trillion KRW) to 97 trillion KRW. Deposits increased by 1.7% (1.7 trillion KRW) from the previous quarter to 102.6 trillion KRW. This was due to attracting deposits in advance to prepare for deposit maturities in the fourth quarter of this year.
Regarding capital, the savings bank industry carried out a capital increase of 200 billion KRW in the third quarter of this year, bringing the total to 14.6 trillion KRW. This is 400 billion KRW less than the same period last year (15 trillion KRW), but 200 billion KRW more than the previous quarter (14.4 trillion KRW). Due to these capital expansion efforts, the Basel Committee on Banking Supervision (BIS) capital adequacy ratio rose by 0.18 percentage points from the previous quarter to 15.18%.
Although the Bank of Korea has lowered the base interest rate twice consecutively in the second half of this year, creating strong expectations for economic recovery due to the easing of the tightening stance, the Korea Federation of Savings Banks forecasts that difficult business conditions will continue for the time being. They expect that management of real estate PF loans will be strengthened going forward, and it will take time for borrowers’ repayment capacity, which has deteriorated due to the economic downturn, to recover. Accordingly, the savings bank industry plans to continue its management strategy focused on strengthening risk management rather than expanding business.
In addition, to manage asset quality, they plan to resolve non-performing loans through write-offs and sales within the year. The scale of personal and individual business non-performing loan resolution in the second half of this year is expected to be larger than about 1.6 trillion KRW in the first half. The amount of write-offs and sales in the third quarter was about 1 trillion KRW. For real estate PF loans, they plan to actively pursue auctions and restructuring for non-performing projects, and manage failed projects through write-offs and other measures.
A representative of the Korea Federation of Savings Banks said, "Going forward, the savings bank industry will expand its loss absorption capacity and actively pursue the resolution of non-performing loans to maintain management stability," adding, "We will strive to solidify trust with clients and financial markets through improved business performance."
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