FSS Launches Large-Scale On-Site Inspections
Focus on Savings Banks With High Delinquency Rates
Measures to Manage 'Money Move' as Deposit Protection Limit Rises
Starting on the 19th, the Financial Supervisory Service (FSS) will conduct on-site inspections of more than 10 savings banks, beginning with OK Savings Bank. The FSS plans to sequentially inspect these savings banks through the second half of the year, focusing on those that appear to be delaying the resolution of distressed real estate project financing (PF) sites despite high delinquency rates.
On the 28th, an interest rate notice was posted at a savings bank branch in Seoul. Photo by Jo Yongjun
According to financial regulatory authorities and the savings bank industry on the 18th, the FSS is launching an on-site inspection of OK Savings Bank, which has the second-largest assets among savings banks.
The FSS has selected more than 10 savings banks with relatively high delinquency rates and will conduct on-site inspections of them in stages through the second half of the year.
Until now, the FSS has managed the soundness of savings banks mainly through on-site assessments or joint inspections with the Korea Deposit Insurance Corporation, but it now appears to be shifting toward large-scale on-site inspections involving more personnel.
Given the large asset size of OK Savings Bank, the FSS is reportedly deploying two to three times the usual number of inspectors (typically six to seven) for this on-site inspection.
Through this inspection, the FSS plans to review overall soundness and risk management, including the resolution of distressed assets and the accumulation of loan loss provisions.
Since June of last year, the FSS has tightened PF project evaluation standards and encouraged the resolution of distressed sites, but the overall delinquency rate has not declined due to delays in the clean-up process at some savings banks.
As of the end of last year, OK Savings Bank's delinquency rate was 9.05%. The average delinquency rate for the 79 savings banks was 8.52% at the end of last year, up 1.97 percentage points from 6.55% at the end of 2023. This is the highest level since the end of 2015 (9.2%).
The delinquency rate for PF-type loans surged to 18.9%, more than doubling from 8.6% at the end of 2023. General corporate loans also rose from 7.6% to 9.0% over the same period.
The FSS reportedly sees a problem in the fact that OK Savings Bank has been passive in resolving distressed assets but aggressive in pursuing external growth through mergers and acquisitions (M&A).
The on-site inspections are also seen as a preemptive measure to strengthen prudential supervision, in line with the increase in the deposit protection limit to 100 million won, which will take effect on September 1.
This is because the secondary financial sector, including savings banks, offers higher deposit interest rates than commercial banks, which could trigger large-scale capital movements.
The FSS is concerned that if excessive funds flow into the secondary financial sector, investments in high-risk areas such as PF could be stimulated again.
In this regard, the FSS has required all 79 domestic savings banks to submit delinquency rate management targets.
Additionally, on the 19th, the FSS will hold a soundness management workshop for savings bank CEOs and executives.
An official from the financial regulatory authority stated, "After receiving the delinquency rate management targets, we will ensure that delinquent loans are resolved as much as possible during the second quarter."
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