"PF and Bridge Loan Resolution Not Gaining Speed"
"NPL Subsidiary to Be Established by Year-End at the Latest"
The Korea Federation of Savings Banks (KFSB) forecasted on the 21st that the deficit trend is expected to continue until the end of the year. It anticipated that the burden of additional reserve fund accumulation could persist due to the worsening real estate market. While welcoming the Financial Services Commission's (FSC) policy to ease mergers and acquisitions (M&A) in the metropolitan area, the KFSB plans to continue efforts toward full deregulation.
Oh Hwa-kyung, Chairman of the Korea Federation of Savings Banks, is explaining the industry's performance at the "2024 Second Half Savings Banks Settlement Press Conference" held on the 21st at the Federation's office in Mapo-gu, Seoul. Photo by the Federation
On the same day, Oh Hwa-kyung, Chairman of the Korea Federation of Savings Banks, held the '2024 Second Half Savings Banks Settlement Press Conference' at the federation's office in Mapo-gu, Seoul, stating, "We need to observe until the first half, but this year's performance is unlikely to show significantly positive or negative figures," adding, "The current trend is expected to continue until the end of the year."
Chairman Oh said, "The industry is reducing assets related to real estate project financing (PF) and bridge loans, but since there are no signs of improvement in the real estate market, additional reserves may need to be accumulated," and added, "Whether we can strengthen the retail sector and accelerate real estate sales might bring positive factors to the performance."
He diagnosed that the biggest immediate issue facing the savings bank sector is the deterioration of asset soundness, citing real estate PF as a problem.
He noted, "Authorities have instructed to rapidly reduce assets related to bridge loans, but the market demand does not support that pace," and pointed out, "There are difficulties in coordinating opinions with the industry, so the speed has not been as fast."
Regarding last year's delinquency rate rising to 8.52%, the highest in nine years, he explained that the surge in corporate loan delinquency rates due to bad real estate loans had an impact.
Chairman Oh said, "About half of corporate loans can be considered real estate-related," and diagnosed, "Compared to commercial banks, there are more inferior customers, so their debt repayment ability seems somewhat weaker."
He added, "We are reducing delinquency rates through auction sales and fund formation."
The federation plans to establish a specialized non-performing loan (NPL) company and strive to achieve full autonomy in M&A.
Choi Byung-joo, Executive Director of the Korea Federation of Savings Banks, said, "We will establish an NPL subsidiary by the end of this year at the latest," adding, "Saemaeul Geumgo and credit unions created lending companies and sold 300 billion won worth of assets in the fourth quarter of last year alone, and savings banks are also consulting with member companies from the beginning of the year according to the FSC's plan."
The federation expressed satisfaction with the FSC's policy announced the previous day to ease M&A regulations. It said it will continue to promote full autonomy in M&A, including in the metropolitan area, in the mid to long term.
The FSC decided to temporarily expand the scope of allowed savings bank M&A for two years. Even if a savings bank is not insolvent, those with a capital adequacy ratio below 12% or classified as 'gray zone' savings banks with asset soundness grade 4 or lower can now conduct up to four M&As, including in the metropolitan area.
Chairman Oh said, "I am somewhat satisfied as the M&A regulations have been eased, such as expanding the scope of sales," and added, "From the authorities' perspective, there may be concerns about the enlargement of savings banks and concentration in the metropolitan area."
He continued, "If given the opportunity, we plan to continuously request full deregulation from the authorities."
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