Savings Bank Sector Returns to Profit After Two Quarters... Delinquency Rate Rises to 9%

First Quarterly Profit Since Q3 Last Year
Delinquency Rate Hits 9%... Highest in Nine Years

The savings bank sector has returned to profitability after two quarters in the red. However, the delinquency rate has risen to its highest level in nine years due to the fallout from defaults in real estate project financing (PF) loans.

On May 29, the Korea Federation of Savings Banks announced that 79 domestic savings banks recorded a net profit of 44 billion KRW in the first quarter, marking a return to profitability after two quarters.

This turnaround is attributed to the continued emphasis on strengthened risk management and the proactive accumulation of loan loss provisions, which reduced the need for additional provisions.

The amount set aside for loan loss provisions decreased from 1.2 trillion KRW at the end of March last year to 900 billion KRW at the end of this March.

However, asset quality indicators have deteriorated. As of the end of March, the delinquency rate stood at 9%, up 0.48 percentage points from 8.52% at the end of last year. This is the highest level since the end of 2015, when it reached 9.2%.

The delinquency rate for corporate loans, which include PF loans, saw a significant increase. As of the end of March, it reached 13.65%, up 0.84 percentage points from 12.81% at the end of last year. The delinquency rate for household loans rose by 0.19 percentage points over the same period to 4.72%.

The Korea Federation of Savings Banks explained that it is actively pursuing self-rescue measures, including the resolution of non-performing real estate PF loans, the establishment of non-performing loan (NPL) subsidiaries, and joint asset sales.

In particular, the Federation plans to complete the establishment of NPL subsidiaries within the first half of the year and begin full-scale operations in the second half, thereby expanding the channels for asset quality management across its 79 member institutions.

A representative of the Korea Federation of Savings Banks stated, "Although the delinquency rate has worsened somewhat compared to the previous quarter, our loss-absorbing capacity remains sufficient. As we are pursuing self-rescue efforts such as joint PF funds and asset sales or amortization, asset quality indicators are expected to steadily improve in line with economic recovery."

The ratio of substandard and below loans stood at 10.59%, down 0.07 percentage points from 10.66% at the end of last year.

The BIS capital adequacy ratio rose by 0.26 percentage points from 15.02% at the end of last year to 15.28%. The liquidity ratio was 207.3%, more than double the statutory requirement of 100%. The loan loss provision coverage ratio was 112.6%, exceeding the legal standard of 100% by 12.6 percentage points. All 79 institutions exceeded the statutory standard.

Total assets amounted to 118.6 trillion KRW, a decrease of 2.3 trillion KRW (1.9%) from 120.9 trillion KRW at the end of last year.

Both loans and deposits fell below the 100 trillion KRW mark.

Total loans stood at 96.5 trillion KRW, down 1.4 trillion KRW (1.4%) from 97.9 trillion KRW at the end of last year. Corporate loans amounted to 48.2 trillion KRW, a 2.4% decrease compared to the end of last year. Household loans remained steady at 40.4 trillion KRW, similar to the level at the end of last year.

Total deposits were 99.6 trillion KRW, a decrease of 2.6 trillion KRW (2.5%) from 102.2 trillion KRW at the end of last year.

A representative of the Korea Federation of Savings Banks explained, "The decrease in deposits compared to the end of last year was due to a conservative business stance and a reduction in surplus funds resulting from adjustments to deposit maturity structures."

Equity capital remained unchanged from the end of last year at 14.5 trillion KRW.

The representative added, "Given the slowdown in economic recovery and changes in both domestic and external macroeconomic conditions, challenging business conditions are expected to persist for the time being. We will continue our efforts to strengthen asset quality until the situation improves."