[Reporter’s Notebook] The Top Priority of the Savings Bank Central Association President

Chairman Oh Hwa-kyung: "Securing Soundness Is the Top Priority"
Achievements Like the Establishment of an NPL Subsidiary Are Needed
Listening to the Industry, Persuading the Authorities... Essential Qualities for the Chairman

"Securing soundness is essential." This is what Oh Hwa-kyung, Chairman of the Korea Federation of Savings Banks, emphasized ahead of the upcoming chairman election. At the 2024 second half savings bank settlement press conference held on the 21st at the Federation's headquarters in Mapo-gu, Seoul, when asked by reporters what the task that the savings bank sector must achieve regardless of leadership change is, Chairman Oh cited "soundness management." He stated that it is necessary to reduce defaults in real estate project financing (PF) and bridge loans and lower delinquency rates to restore market trust.

Managing delinquency rates is the biggest challenge that the savings bank industry also agrees on. Last year, the delinquency rate of 79 savings banks reached 8.52%, the highest in nine years. This is why the industry is raising its voice that recovering soundness is a more urgent task than easing merger and acquisition (M&A) regulations or mid-interest loans. For Chairman Oh, who was the sole nominee for the next Federation chairman, managing delinquency rates remains the most urgent task. To solve this, communication with financial authorities is crucial. Past cases clearly demonstrate the importance of communication.

Chairman Oh prioritized strengthening soundness as the top task after the Legoland incident at the end of 2022, the large-scale deposit withdrawals (bank run) at Saemaeul Geumgo in 2023, and the Taeyoung Construction workout last year. However, as the situation did not improve, the Financial Supervisory Service (FSS) began increasing pressure on distressed PF projects in May last year. The FSS judged that savings bank real estate PF mainly consists of bridge loans and land-secured loans, which have a high probability of default, and subdivided the classification criteria for savings bank PF projects from three stages (Good, Normal, Concern for Deterioration) to four stages (Good, Normal, Caution, Concern for Default). For the lowest-level projects with concern for default where delinquency continued for more than three months, it was mandated to handle them through auction or public sale within six months. This was pressure to promptly dispose of non-performing loans (NPLs) through auction or public sale. Savings banks found it difficult because if they hurriedly conducted transactions as required by the authorities, they had to sell the assets at prices lower than market value, feeling like "biting the bullet."

In response, the Federation concluded that the existing NPL trading channels, such as the Korea Asset Management Corporation (KAMCO) and private securitization companies, should be expanded. Subsequently, the Federation focused on persuading the authorities to allow the establishment of an NPL-specialized subsidiary under the Federation. Unlike the banking sector (Korea Asset Management Corporation), NongHyup (NongHyup Asset Management Company), and Saemaeul Geumgo (MCI Loan), the savings bank sector does not have its own NPL specialized company, and the Federation persistently emphasized the necessity of establishing an NPL subsidiary. In particular, it highlighted that the credit unions were able to sell about 300 billion KRW additionally in the fourth quarter of last year through KCU NPL loans, stressing the essential need for a savings bank NPL subsidiary. Eventually, this resulted in the establishment of the NPL subsidiary. This was the outcome of the Federation chairman’s persistent communication with the authorities without giving up.

Strengthening soundness remains a key issue for the savings bank industry. The establishment of the NPL subsidiary is just the beginning. The next Federation chairman must continuously communicate with both the industry and the authorities to find solutions. This is the role that the savings bank sector expects from the next chairman.